09 Oct Retirement saving if you’re over age 70 1/2

Q. If you’re over 70-1/2 and started your Required Minimum Distributions (RMDs) can you still contribute to an IRA if you work part-time as an independent contractor?

A. You have options, but a traditional IRA is not one of them.

You cannot make any contributions to a traditional IRA once you turn 70½ years of age, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

But if you’re self-employed, you can contribute to a SEP-IRA, he said.

“The 2015 contribution limits to a SEP-IRA is the lesser of $53,000 or 25 percent of your compensation,” Kiely said.

He offered this example:

Schedule C profit: $50,000
Less deductible portion of self-employment tax (3,533)
SEP contribution (9,293)
Subtotal 37,174
Times 25% X25%
SEP Pension limit $9,293

There are other options, too.

You wouldn’t get the tax write-off, but you could still contribute to a Roth IRA, which would offer tax-free withdrawals, said Vicky Tomaro, an Investment Advisor Representative with Tomaro Financial Group in Wall.

You said you’re working as an independent contractor, so you’re probably not eligible for an employer-sponsored plan.

But if you were, Tomaro said, someone who is 70 ½ and still working for a company or municipality that has either a 401(k) plan or a 403(b) plan can continue to contribute into the plan and those monies may not have to be taken out under the RMD rules based on the plan documents and how they read.

“By saving, they can offset the fact that they have to draw out of any IRA accounts that they may have,” Tomaro said. “Tax-wise, this could end up being a benefit.”
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This story was first posted in October 2015.