Can You Contribute To A Roth IRA After Retiring?

Your Roth IRA provides a wonderful opportunity to shift future tax burdens forward, perhaps even by decades. By contributing to a Roth, you pay income taxes normally today, deposit after-tax funds that will grow tax-free over time, and then withdraw them tax-free later on. It's a great way to reduce your tax burden, although unlike a traditional IRA, you can't utilize contributions to reduce your adjusted gross income, or AGI.

Because the Roth IRA is such a popular option for growing retirement assets, some people look to open a Roth as soon as possible and continue making contributions for as long as they can, perhaps even after reaching full retirement age (66 or 67, depending on your birth year). There are plenty of reasons to delay the start to your retirement, and adding more to your Roth IRA, along with other components of your savings portfolio, is one solid reason to remain in the workforce.

Even so, it's actually possible to continue making contributions to your Roth IRA after launching your retirement, but some of the rules may ultimately feel a little difficult to make sense of. In truth, the governing principles are easy to follow; however, the ways in which they establish or preclude eligibility around retirement age can be a bit murky. Here's how to continue contributing to a Roth IRA after retiring, why you might want to do so, and the features that could actually make this decision one to avoid.

Roth IRA owners must earn income in order to make contributions to their Roth IRA. There's no getting around this rule, so if you've left the workforce entirely and aren't earning any more income (aka taxable compensation), you won't be able to continue funding your Roth and will instead want to plan to start taking distributions (perhaps via the 4% rule). The SECURE Act of 2019 lifted the requirement to take distributions from a Roth IRA (although it's still required for traditional IRAs), allowing this investment vehicle to function as part of an estate plan and your retirement strategy.

Workers considering their curtain call might think about taking on part time work to create the conditions to maintain eligibility. While working part time in your local community will give you a paycheck, it's important to remember that you can only contribute up to your modified adjusted gross income (MAGI), essentially the value of that work, to your bank account. You can't stay employed for one day a week, then pump all your Social Security benefits and capital gains from other investments into a Roth.

While working part time can provide an avenue to continue making regular contributions to your Roth, an alternative is to establish a business for yourself and take on contract work through that entity. By doing this, you can pay yourself a paycheck of whatever size you deem necessary (with available funds, of course), opening up the option to contribute whatever you deem sufficient to your Roth. By paying yourself, you'll remain employed, and you can pay out large or small paychecks each month to fit your ongoing needs. This also provides a raft of tax-deduction options and other benefits, but isn't for the faint of heart!

It's prudent to establish a business and start tackling contract work in this format for a few years (at least) before considering the strategy as a means to continue funding your lifestyle — including your Roth IRA — into retirement. Keep in mind the only way to pay yourself is to generate and maintain an available reserve of funds in your business accounts.

This said, channeling your income through a business entity can help mitigate tax burdens in the present, too. By earning money through your own business, you can pay yourself a portion of those earnings (or the entire sum, if necessary), strategically managing your tax burden in the process. As well, by utilizing a business structure like this, you might also create additional opportunities to utilize tax-advantaged 401(k) opportunities or even snag beneficial health care access.

Because the benefits may not always outweigh the hoops you'll have to jump through to continue funding a Roth IRA in retirement, some alternative approaches may be better suited to your needs and personal circumstances.

For instance, Dave Ramsey suggests taking Social Security benefits as early as possible and then investing it in a mutual fund or ETF. Your Social Security benefits aren't considered regular income, and therefore in retirement they don't count as wages that create eligibility for Roth IRA deposits. Utilizing a standard brokerage account, however, will provide the same basic outcome once you're in the arena of retirement (tax advantages really show their strength early on in your savings journey, which is why starting young is so important).

The reality is that a Roth IRA is best suited to savers who will utilize the power of time over many years to come. While it's entirely possible to create the conditions that allow you to continue placing money in the account after you retire, the benefits are often far slimmer than they would have been years prior. This doesn't mean it's universally irrelevant, and the tax assist is certainly welcome, even if its minimized. However, most retirees shouldn't look to go out of their way to reengage their ability to deposit funds into a Roth if they've stopped working altogether.