It's an important answer to have.
Saving for retirement is a major undertaking. And you may be in a position to continue to do it, even if you're already retired.
Let's say you decide to leave your career behind at age 67 but want to continue working on a part-time basis. At that point, you may not need your earnings right away, so you might decide to put that money into an IRA, instead. That way, you can enjoy a tax break on that money and invest it.
But what if you're already receiving Social Security at that time? Are you allowed to make IRA contributions if you have benefits coming in?
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Social Security won't stop you from funding an IRA
Social Security eligibility begins at age 62, and you can collect your full monthly benefit based on your income history once you reach full retirement age (FRA). That age is 67 for anyone born in 1960 or later. Otherwise, it's either 66, or 66 and a certain number of months.
You're allowed to collect Social Security even if you're working on a full-time basis. And once you reach FRA, you can earn any amount of income without it impacting your benefits. If you work and collect Social Security before reaching FRA, you may have some of your benefits withheld if your income exceeds a certain limit.
Let's say you're collecting Social Security while working in some capacity. You can take the money you earn from your job and put it into an IRA. What you can't do, however, is use your Social Security benefits to fund your IRA.
IRA contributions have to come from earned income. This year, IRAs max out at $6,500 for workers under 50 and $7,500 for those 50 and over. If you're on Social Security, it means you fall into the latter category.
If you earn $7,500 or more from a job, you can contribute the maximum for your age to an IRA this year. But if you only earn $5,000 from a job, you can't contribute $5,000 to an IRA from your earnings and another $2,500 from your Social Security benefits. Instead, you'll be limited to a $5,000 contribution.
Should you fund an IRA later in life?
If you can, absolutely go for it. First of all, you'll get a tax break on the money you put into that account. You'll also get a chance to grow that money in a tax-advantaged manner. There's no disadvantage to padding your IRA at a later age.
In fact, many people who work later in life need the money for immediate bills. But if you're working more so as a means of staying busy and less so due to financial necessity, then you might as well put your earnings to work by investing them.
You can also invest the money you're receiving from Social Security if you don't need it to pay for immediate expenses. You just can't invest your benefits in an IRA. A regular brokerage account, however, works just fine.
FAQs
Social Security won't stop you from funding an IRA
Can I contribute to an IRA if I am taking Social Security? ›
Yes. You may be able to deduct your contributions to a traditional IRA depending on your income, filing status, whether you are covered by a retirement plan at work, and whether you receive social security benefits.
What is the $16728 Social Security bonus most retirees completely overlook? ›
Have you heard about the Social Security $16,728 yearly bonus? There's really no “bonus” that retirees can collect. The Social Security Administration (SSA) uses a specific formula based on your lifetime earnings to determine your benefit amount.
Will an IRA affect my Social Security? ›
Roth IRA distributions have no effect on Social Security benefits, including the earnings test or taxation of benefits. Any unearned income, such as interest or dividends, doesn't affect your ability to collect Social Security, but it can make more of your benefits taxable.
Can a retired person invest in an IRA? ›
The Bottom Line. You can open and contribute to an IRA at any age as long as you have earned income.
Can I contribute to an IRA if I am not working? ›
To contribute, you must have earned income in the year you wish to contribute. That means even people under 18 who've earned money—perhaps from a summer job or after-school gig—can start saving for retirement.
What happens if you contribute to an IRA without earned income? ›
The IRS gets a little grumpy if you contribute to a Roth IRA without what it calls earned income. That usually means that you need a paying job—working for either someone else or your own business—to make Roth IRA contributions.
At what age is Social Security no longer taxed? ›
Social Security income can be taxable no matter how old you are. It all depends on whether your total combined income exceeds a certain level set for your filing status. You may have heard that Social Security income is not taxed after age 70; this is false.
What is the 10 year rule for Social Security? ›
If you've worked and paid taxes into the Social Security system for at least 10 years and have earned a minimum of 40 work credits, you can collect your own benefits as early as age 62. We base Social Security benefits on your lifetime earnings.
When my husband dies, do I get his Social Security and mine? ›
In many cases, a surviving spouse can begin receiving 1 benefit at a reduced rate and allow the other benefit amount to increase. If you will also receive a pension based on work not covered by Social Security, such as government or foreign work, your Social Security benefits as a survivor may be affected.
If you're at least age 59½ and your Roth IRA has been open for at least five years, you can withdraw money tax- and penalty-free. See Roth IRA withdrawal rules.
How much money can you have in the bank on Social Security retirement? ›
To get SSI, your countable resources must not be worth more than $2,000 for an individual or $3,000 for a couple. We call this the resource limit. Countable resources are the things you own that count toward the resource limit. Many things you own do not count.
What income disqualifies you from IRA? ›
Roth IRA Income Limits
| Roth IRA Income and Contribution Limits for 2024 |
|---|
| Less than $146,000 | $7,000 ($8,000 if age 50 or older) |
| $146,000 to $161,000 | Begin to phase out |
| $161,000 or more | Ineligible for direct Roth IRA |
9 more rowsYou can take the money you earn from your job and put it into an IRA. What you can't do, however, is use your Social Security benefits to fund your IRA. IRA contributions have to come from earned income.
At what age can I no longer contribute to an IRA? ›
For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs. For 2019, if you're 70 ½ or older, you can't make a regular contribution to a traditional IRA.
Can I contribute full $6,000 to IRA if I have a 401k? ›
If you participate in an employer's retirement plan, such as a 401(k), and your adjusted gross income (AGI) is equal to or less than the number in the first column for your tax filing status, you are able to make and deduct a traditional IRA contribution up to the maximum of $7,000, or $8,000 if you're 50 or older, in ...
At what income can you not contribute to a traditional IRA? ›
Unlike the Roth IRA, the traditional IRA has no income limits for contributing, but your ability to deduct contributions may be reduced or eliminated depending on your modified adjusted gross income (MAGI), your filing status, and whether you (or your spouse) have a workplace retirement plan.
How much can I contribute to an IRA at age 63? ›
The combined annual contribution limit for Roth and traditional IRAs for the 2024 tax year is $7,000, or $8,000 if you're age 50 or older. Those limits reflect an increase of $500 over the 2023 limit of $6,500 ($7,500 if you are 50 or older).
What is considered earned income for IRA contributions? ›
For the year you are filing, earned income includes all income from employment, but only if it is includable in gross income. Examples of earned income are: wages; salaries; tips; and other taxable employee compensation. Earned income also includes net earnings from self-employment.
