20 Jul Can I put my Social Security benefits into an IRA?

Q. I’m 65 years and seven months old. I’ve decided to keep working and collect Social Security. Can I deposit my full amount of the Social Security into an IRA or Roth and not pay taxes or penalties? I do not plan on spending any of what’s deposited.
— Not retired yet

A. We’re glad to hear you’re still looking for ways to save for the future.

There are a few things to consider here.

First, once someone has attained full retirement age for Social Security, they can have unlimited earned income and not have any of their Social Security benefits withheld, said Joseph Sarnecki, a certified financial planner with U.S. Financial Services in Fairfield.

Prior to full retirement age, Social Security benefits can be withheld if that person is working and has earned income over certain amounts, he said.

He said regarding your ability to contribute to an IRA or Roth IRA, as you have earned income from your job, assuming you qualify based on income limits, you can contribute to an IRA or Roth up to the maximum amount for 2023, which is $7,500 for those above the age of 50 ($6,500 + $1,000 catch up contribution).

Although your Social Security is likely higher than this amount, that’s the maximum amount you can save whether in a traditional IRA, Roth or a combination of the two, he said.

“If you are married, you might also be able to contribute on behalf of your spouse with a spousal contribution,” he said.

A traditional IRA provides a tax-deduction today, and when you take funds out in the future, you will be required to pay taxes at ordinary income rates, Sarnecki said. The Roth IRA allows you to contribute with after-tax funds, but when you take future distributions, they will be tax-free, he said.

“Your ability to contribute is based on the fact you have earned income,” he said. “Social Security benefits alone are not considered earned income.”

Sarnecki said another option, if you have a company retirement plan like a 401(k), you could increase those contributions. For 2023, this amount is $30,000 — $22,500 plus a $7,500 catch-up contribution for those over age 50..

Consider speaking to an advisor who can further discuss your eligibility to contribute and what strategy will best help you maximize your Social Security benefits.

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This story was originally published on July 20, 2023.

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.