Outside the Box: I’m 73, single and work part time, should I put money into an IRA?


Q: I am 73 and single. Looking at my taxes for 2020, I think I can save a few bucks by putting money in an IRA. I don’t have a 401(k) or anything like that, and make some money working part time so if I understand it, I can make a deductible IRA contribution now. Is that true? Is that smart?

— Gene in Mobile

A.: Gene,

Working seniors, regardless of their age, have always been able to contribute to a Roth IRA if their income was within certain limits but if over age 70½, they could not contribute to a traditional IRA. The SECURE Act of 2019 eliminated that age restriction so now persons over age 70½ can contribute to a traditional IRA if they have earned income. Earned income is basically earnings from working and certain other payments like alimony from a divorce settled in 2018 or earlier.

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Whether making a contribution is smart depends on the particulars of your tax return and other factors. You should discuss the details with your adviser, but I will touch on a couple of factors here.

The 2020 contribution can be 100% of earned income up to a maximum of $7,000 for 2020 ($6,000 for anyone under age 50) and can be made as late as April 15, 2021. Whether you can deduct the contribution is dependent on your Modified Adjusted Gross Income (MAGI) and whether you participate in a qualified retirement plan. With no 401(k), you are probably not a plan participant.

For 2020, single taxpayers that are not participants in a qualified plan can make tax deductible contributions. Single taxpayers that are participants must have a MAGI of $64,999 or less to deduct a full contribution. Such participants with MAGI over $75,000 cannot deduct any of their contribution and those with a MAGI in between, get a partial deduction.

Unlike a Roth IRA or a 401(k) at your employer, you will still have to make a Required Minimum Distribution (RMD). Nonetheless, making a deductible contribution may still reduce your taxes some.

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One wrinkle to contend with applies if you make Qualified Charitable Distributions (QCD) to charity from a traditional IRA. For those over 70½, this is a popular and efficient way to give to charity because the donations can count toward RMD but are excluded from income. Once you make a deductible contribution to an IRA any QCDs you make are included in income until the amount of QCDs equals the cumulative total of all deductible IRA contributions made since the year you turned 70½.

For example, if you make a deductible contribution of $7,000 in both 2020 and 2021, the first $14,000 of QCDs are not tax-free distributions. You may or may not get some tax benefit from those donations as an itemized deduction.

If you have a question for Dan, please email him with “MarketWatch Q&A” on the subject line.

Dan Moisand is a financial planner at Moisand Fitzgerald Tamayo serving clients nationwide from offices in Orlando, Melbourne, and Tampa Florida. His comments are for informational purposes only and are not a substitute for personalized advice. Consult your adviser about what is best for you. Some questions are edited for brevity.

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