Investing In An IRA After Retirement

Investing In An IRA After Retirement

by Dec 13, 2018

As it becomes increasingly more common for people to continue working after they’ve retired, those retirees may need a strategy for saving or investing that income. A good option to consider is to save and invest in an IRA when working after retirement.

Many retirees may have already set up an IRA, making the process that much easier. However, there are both benefits and drawbacks to using an IRA when working after retirement, and it’s important to understand both before committing one way or the other.

Benefits Of Using An IRA After Retirement

One of the biggest advantages of investing in an IRA during retirement is for the tax benefits. Traditional IRAs offer tax-deductible contributions and Roth IRAs offer after-tax contributions with tax-free investment growth. Keep in mind that for those over 70.5 years old, a Roth IRA is likely a better solution. This is because a Roth IRA is not subject to required minimum distributions (RMDs) while the owner is still alive.

This ensures you can continue to save, invest, and grow your money late into life without worrying about the account being reduced by RMDs. A Roth IRA also gives owners the flexibility of spending their money when they want to, not when the IRS mandates distributions.

Additionally, both Roth and traditional IRAs are a good place to store wealth and protect it from creditors when working after retirement. For professionals with personal liability concerns, IRAs are an excellent place to shelter money.

Drawbacks Of Using An IRA After Retirement

The biggest drawback of investing in a traditional IRA when working after retirement is that, once past age 70.5, retirees can no longer make contributions of any kind, under any conditions. This is a limitation only with traditional IRAs, and Roth IRAs don’t have the same restrictions.

Traditional IRAs also have relatively low annual contribution limits. Next year, for example, the maximum contribution is $6,000 per year for both Roth and traditional IRAs, plus an extra $1,000 if you’re over the age of 50.

Finally, putting money in an IRA during the earlier years of retirement increases the required minimum distribution amounts retirees must take once they reach 70.5 years of age. This could have the additional drawback of subjecting retirees to higher taxes.

How To Decide

A lot of factors will need to be taken into account when trying to decide what the best solution for saving and investing is when working after retiring. If possible, retirees should consult with a reputable financial planner who can evaluate their unique financial situation and make a recommendation that meets their needs.

At Miles Brown Asset Management, we always put our client’s financial and lifestyle goals front and center, and work hard to craft a financial strategy that enables those goals, rather than working backwards from a set budget that dictates what kind of lifestyle a person can have.

For more information, or to get help with retirement planning, please contact our offices today.

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