Still Working Past 70? Don't Miss This IRA Tax Savings Opportunity

If you’re still working and earning income past your 70th birthday, you are likely missing a key opportunity to reduce your taxable income and save more for retirement. Thanks to a recent rule change, there's no longer an age limit for contributing to a Traditional IRA, provided you have earned income. This means you can keep putting money into a tax-advantaged account and potentially claim a tax deduction, even well into your senior years. For those 50 and older, you can also take advantage of higher "catch-up" contribution limits, giving your savings an extra boost.

What’s Happening

For decades, a long-standing rule stated that you could not contribute to a Traditional Individual Retirement Account (IRA) once you reached age 70½. This often led many older adults to stop contributing to retirement accounts even if they continued to work. However, the SECURE Act (Setting Every Community Up for Retirement Enhancement Act), passed in late 2019, changed this.

Now, if you have earned income from work (wages, salaries, self-employment income), you can contribute to a Traditional IRA regardless of your age. This means someone working part-time at 72, consulting at 75, or running a small business at 80 can still put money into a Traditional IRA. Roth IRAs never had an age limit, only income limits, so this change primarily impacts Traditional IRA contributions.

Why This Matters for Retirees

This rule change is significant for anyone still working in their later years. Here’s why:

• Immediate Tax Savings: Contributions to a Traditional IRA are often tax-deductible. This deduction directly reduces your taxable income for the year you make the contribution. For example, if you earned $50,000 and contributed $7,500 to a Traditional IRA (including the catch-up contribution for those 50+), your taxable income could drop to $42,500. This can lead to a noticeable reduction in your tax bill now.
• Continued Growth of Your Nest Egg: Even if you're close to or already in retirement, more money in a tax-advantaged account means continued potential for growth. The power of compounding doesn't stop just because you're older.
• Catch-Up Contributions: If you are age 50 or older, you can contribute an extra "catch-up" amount to your IRA each year. This makes the opportunity even more powerful for the 55-75 age group, allowing you to save more than younger workers.
• Flexibility for Income Planning: If you're delaying Social Security or have other taxable income, an IRA contribution can help offset some of that income, providing valuable tax relief.

The Hidden Risk Most People Miss

The biggest risk for older adults when it comes to IRAs is simply not knowing about this rule change, or operating under outdated assumptions. Many financial decisions are made based on rules that no longer apply, leading to missed opportunities.

• Leaving Money on the Table: By not contributing, you're missing out on annual tax deductions that could lower your current tax burden.
• Foregoing Future Growth: Every year you don't contribute is a year your money isn't growing tax-deferred or tax-free within an IRA. Even a few years of contributions can add up significantly over time thanks to investment returns.
• Underestimating Small Contributions: Even if you can only contribute a modest amount, the cumulative effect of tax savings and investment growth can still be meaningful, especially if you're taking advantage of catch-up contributions. Don't assume it's "too little to matter."

What You Can Do About It

Don't let outdated information cost you valuable tax savings. Here are practical steps to consider:

1. Check Your Earned Income: The fundamental requirement for contributing to an IRA is having "earned income" from work. This includes wages, salaries, tips, bonuses, and net earnings from self-employment. Investment income, pension income, or Social Security benefits do not count as earned income for this purpose.
2. Understand Current Contribution Limits: For 2024, the maximum you can contribute to an IRA is $7,000. If you are age 50 or older, you can contribute an additional $1,000 "catch-up" contribution, bringing your total to $8,000. Make sure your contributions don't exceed your earned income for the year.
3. Traditional IRA vs. Roth IRA:
   • Traditional IRA: Contributions might be tax-deductible now, reducing your current tax bill. Withdrawals in retirement will be taxed. This is generally good if you expect to be in a lower tax bracket in retirement than you are now.
   • Roth IRA: Contributions are made with after-tax money (no upfront deduction). However, qualified withdrawals in retirement are entirely tax-free. This can be very attractive if you expect to be in the same or a higher tax bracket in retirement, or want to diversify your tax exposure. Roth IRAs also have income limits for contributions.
   The best choice depends on your current income, expected future income, and overall tax strategy.
4. Review Your Overall Tax Situation: Think about your current income, other deductions, and what your tax bracket looks like. An IRA contribution could make a significant difference, especially if it helps you move into a lower tax bracket.
5. Talk to a Financial or Tax Professional: Rules around IRAs and taxes can be complex, especially as you approach and enter retirement. A qualified financial advisor or tax professional can help you understand your specific situation, determine the best type of IRA for you, and ensure you're maximizing your tax-saving opportunities. They can also help integrate this strategy with your overall retirement income plan.

The real issue is not just what is happening in the news - it is how it affects your personal retirement income.

What Would This Mean for YOUR Retirement Income?

Most retirees assume Social Security and savings will be enough - until they actually run the numbers.

The truth is, even small changes can dramatically affect your monthly income.

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About JP

JP Sansaricq is a licensed real estate broker and retirement income specialist based in Florida.

He helps individuals and families turn their assets - including savings, home equity, and retirement accounts - into sustainable income strategies designed to last through retirement.

This article is part of an ongoing series focused on helping retirees make informed financial decisions with clarity and confidence.

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