03 Aug I’m getting Social Security. Can I still save in an IRA?

Q. I am 70 and just started collecting Social Security and I work part-time. I still own 20% of the real estate appraisal business that my husband and I have run for 28 years. It’s an LLC, my husband still works full time and he’s not yet getting Social Security. We may have employees again sometime in the future. We have SEP-IRAs that we have contributed to over the past 12 years in the amount of 25% of the profits that each of us made from this business. In the past the amount on each K-1 has been between $50,000 and $60,000 each over the past few years. Can I continue to contribute to my SEP in the amount of 25% of the amount on my K-1? Can I still contribute to my IRA as long as it is not more than I earn in income? Is that amount deductible on our 1040 when we file?
— Saver

A. Congratulations on your savings accomplishments.

Here’s what you need to know about future savings.

In 2023, the contribution limit for a SEP IRA is the lesser of 25% of the employee’s compensation or $66,000, said Matthew DeFelice, a certified financial planner with U.S. Financial Services in Fairfield.

You said that you and your husband have been earning between $50,000 and $60,000 the last few years, and you can contribute the 25% you have been doing, he said.

You are never too old to make a SEP IRA contribution.

“There is no age limit as long as you are working with earned income and meet the plan’s eligibility rules, even if you are 70 and older and collecting Social Security,” he said.

Additionally, the government places no restrictions on contributing to both a SEP IRA and a traditional IRA in the same year, he said.

And once age 50 or older, you can also include a catch-up IRA contribution without having to reduce how much goes into your SEP-IRA, he said.

“Your employer — the LLC — makes the full contribution to the SEP based on your income, and then you can also make a maximum contribution to your own traditional IRA ($7,500 in 2023 age 50 or older),” he said. “However, if you as an employee — not an employer — contribute money to your SEP-IRA, then it reduces your contribution limit to other IRAs dollar for dollar.”

Whether you can take the deduction for the traditional IRA contribution or not depends ultimately on your income at the end of the year, DeFelice said.

In 2023, those individuals who participate in workplace retirement plans (which in your case a SEP IRA is considered) can only take the full deduction on a traditional IRA contribution if their income is $73,000 or less (single filers) or $116,000 or less (married filers), he said.

“Since your joint income puts you right on the cusp of the income limits for the traditional IRA deduction, you may want to consider making a Roth IRA contribution instead if you don’t qualify,” he said.

Roth IRA eligibility income limits are substantially higher — $153,000 for single tax filers and $228,000 for married filers, he said.

The contribution limit is the same as the traditional IRA, DeFelice said, including the $7,500 including catch-up for those age 50 or older.

“You won’t get the tax deduction, but there are many other benefits to funding and having a Roth IRA, including but not limited to whatever it grows to will never be taxed since you funded it with after-tax dollars,” he said.

Consider working with a tax professional before you make your final contribution decisions.

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This story was originally published on Aug. 3, 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.