ASK KIM


Strategies to Stretch Retirement Savings

Kimberly Lankford

Here's what you need to know about contributing to Roth IRA for yourself or a spouse if you return to work after retiring.



I’ve received a lot of questions recently from people who delayed their retirement plans or took on extra work after retiring because their account balances took such a big hit. Many are wondering how their age affects contributing to an IRA and about converting an IRA to a Roth when its account balance is low -- all so they can develop strategies to help stretch retirement savings. Here are some answers:

If I do freelance work after I retire, can I open a Roth IRA?

Yes -- there's no maximum age for contributing to a Roth IRA. You must have earned income to contribute to a Roth, and your contribution can’t be more than the amount of income you’ve earned for the year.

If you’re 50 or older, you can contribute up to $6,000 to a Roth IRA for 2008, as long as your modified adjusted gross income is less than $101,000 if you’re single, or $159,000 if you’re married filing a joint tax return (people younger than 50 can contribute $5,000 for 2008). The amount you can contribute phases out gradually until your income reaches $116,000 if you’re single, or $169,000 if you’re married filing jointly. You cannot contribute if you earn more than those limits. You have until April 15, 2009, to make your 2008 contribution.

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If you’ve had a Roth IRA for at least five years, then you can withdraw the money tax-free and without a penalty if you’re older than 59½. You never have to take required minimum distributions from a Roth IRA. With a traditional IRA, however, you must start taking required minimum distributions by April 1 of the year after the year you turn 70½. Unlike a Roth, a traditional IRA prohibits contributions after you reach 70½.

If I work after retiring but my wife doesn’t, can I open a spousal Roth IRA for her?

As long as one spouse has some earned income, he or she can contribute to an IRA on the other spouse’s behalf. If you’re both 50 or older, then you can each contribute up to $6,000 to IRAs, although the total contributions cannot exceed both spouses' combined earned income for the year.

Your joint income needs to fall within the Roth limits to contribute to a Roth IRA. See Contribute to an IRA for Your Spouse for more information.

I am 60 years old and retired, and I work part-time and contribute to a Roth IRA. My earned income this year was only $500. Can I make a contribution this year of $1,500 (that is, $500 for earned income and an additional $1,000 as a catch- up contribution) ?

No. Even though people 50 and older can contribute up to the standard $5,000 limit plus a $1,000 catch-up contribution, your total contributions cannot exceed your earned income for the year. That means your contributions would be limited to $500 for 2008, unless your spouse has earned income as well. See the question above for more information about spousal IRAs.

Can you convert a traditional IRA to a Roth if you have no earned income? My income derives only from Social Security, a pension and investments.

Yes. Although you need earned income to contribute to an IRA, you don’t need earned income to convert a traditional IRA to a Roth. Your adjusted gross income for the year just needs to be less than $100,000 (whether married or single). That $100,000 limit disappears in 2010.

Converting to a Roth can be a great strategy if your account value has fallen because you’re taxed on the account balance (minus any non-deductible contributions) when you make the switch. See Convert Now to a Roth IRA? for more information.

Got a question? Ask Kim at askkim@kiplinger.com.




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