30 Jan I’m retired. How much can I save in an IRA?

Q. I am 66 years old and retired. Can I open a Roth with $15,000 and how do I get started?
— Want to save

A. We’re always glad to hear about someone saving for the long-term.

But you need to make sure you understand the rules.

In 2020, if you are age 50 or older, the maximum you can contribute to a Roth IRA is $7,000, said Matthew DeFelice, a certified financial planner with U.S. Financial Services in Fairfield.

Those under age 50 can save $6,000.

There are other rules, though.

You must be working and have earned income to be eligible to make a Roth contribution for any given tax year, DeFelice said.

“If you are retired and no longer working in any gainful employment but your spouse still has a job, your spouse — if 50 or older — can contribute $7,000 on their own and make a spousal Roth contribution of $7,000 for you even though you are retired,” he said. “Your spouse would need to have at least $14,000 in earned income and you must file a joint tax return in order to make an individual and spousal Roth contribution.”

Earned income includes money from wages (W2 or 1099), salaries, bonuses, tips, commissions and self-employment income, DeFelice said. Additionally, the IRS considers disability retirement benefits as earned income until you reach the age you could have received a pension if you were not collecting disability.

Earned income does not include pension benefits, alimony, child support, income from a rental property, interest and dividends from investments, distributions from a 401(k) or IRA, Social Security or unemployment benefits, DeFelice said.

You will also have to meet certain income limitations.

“This means if you make too much money, you won’t be eligible to make a Roth contribution or a spousal Roth contribution,” he said.

In 2020, for a married couple filing jointly or a qualifying widow(er), the Roth IRA modified adjusted gross income (MAGI) limits are $196,000. Between $196,000 and $205,999, you can make a reduced Roth contribution, and if your MAGI is $206,000 or higher, you are completely phased out and no longer eligible, he said. For taxpayers who are single, head of household or married filing separately, the phase-out starts at $124,000 MAGI and ineligibility occurs once you are at $139,000 or more.

Also keep in mind that the new SECURE Act traditional IRA contributions with no age limitations.

And, read this to get some ideas on where to make your first investment.

Good luck with your savings!

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This story was originally published on Jan 30, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.