How Working Past 70 Affects Retirement Savings

Age and employment status impact required minimum distributions and the ability to contribute to IRAs and 401(k)s.

I’ve been getting a lot of questions from people who are in their seventies and still working and are wondering how that affects the rules for required minimum distributions from retirement plans as well as contributions. Here are answers to some of their questions.

TOOL: What Is My IRA Required Minimum Distribution?

I’m going to turn 70½ this year, but I’m still working. Will I need to take required minimum distributions from my 401(k) and IRA?

You generally need to take required minimum distributions from your 401(k)s and traditional IRAs after you turn 70½, whether or not you’re still working. But there is one exception: You don’t have to take RMDs from your current employer’s 401(k) until you leave that job.

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Can I make new contributions to my IRA and 401(k) if I’m still working after age 70½?

You can’t make traditional IRA contributions after age 70½, whether or not you’re working. But you can make new contributions to your current employer’s 401(k) after you turn 70½, and you can make new contributions to a Roth IRA at any age as long as you have earned income from a job. To contribute to a Roth, your modified adjusted gross income must be less than $131,000 in 2015 if you’re single or $193,000 if you’re married filing jointly (the contribution amount starts to phase out if you earn more than $116,000 if single or $183,000 if married filing jointly). See How Much You Can Contribute to Retirement Plans in 2015 for more information.

Can I convert money from a traditional IRA to a Roth after age 70½?

Yes. You can make a Roth conversion at any age, whether or not you have earned income. You must pay taxes on the amount converted (part of it will be tax-free if you have made nondeductible contributions to your traditional IRA). Converting money to a Roth doesn’t give you a pass when it comes to taking that year’s required minimum distribution – the IRS considers the first money you take from your IRA to be your required minimum distribution before you make your conversion (and your RMD is based on the balance at the end of the previous year). But after that, the money can grow tax-free in the Roth and not be subject to required minimum distributions. See Rules for Converting Money From a Traditional IRA to a Roth for more information.

My wife and I are both in our mid seventies. I work part-time and make about $15,000 per year, but my wife doesn’t work anymore. Can we both contribute to an IRA?

Because you’re both over 70½, you can’t contribute to traditional IRAs, but you can contribute to a Roth IRA. Your earned income allows you to contribute to a Roth for yourself and to a spousal Roth for your wife – up to $6,500 each because you’re both over age 50. (If you had earned less than $13,000 for the year, you wouldn’t be able to contribute the full amount to one of the accounts because your total contributions can’t exceed your income for the year.) See Contributing to a Spouse’s IRA in Retirement for details.

For more information about RMDs, see our Required Minimum Distribution Special Report.

Kimberly Lankford
Contributing Editor, Kiplinger's Personal Finance

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.