We have more than a few clients who are still on the job after age 70. Many of them are business owners, and they love what they do. Some intend to stick around until they ultimately sell the business or transition it to the next generation of owners.
Most of these business pioneers are well prepared for retirement, but being disciplined savers and investors, they’re not averse to setting aside more for the future, as long as there’s a good reason and a tax deduction to do so.
So if you find yourself still on the job after 70, here’s a few savings pointers to keep in mind:
Once you hit age 70 1/2, you can no longer contribute to a Traditional IRA. That rule is written in stone. No exceptions.
However, you can (and should) contribute to a Roth IRA if you still have earned (working) income and earn under the approved ceiling. There is no maximum age limit. If you are eligible for a Roth contribution, NEVER neglect to make one! Remember that you can always withdraw your Roth contributions without penalty, and every dollar that remains inside the Roth is free from future taxes. Don’t pass up that opportunity!
It’s two steps forward and one step back when it comes to other retirement plans like a SIMPLE IRA. You can continue contributing to your SIMPLE-IRA after 70 1/2, but you simultaneously need to take out your Required Minimum Distributions (RMDs). These rules apply to business owners and employers alike. So why would any smart person put in and take out money in the same year? It’s simple (no pun intended!). You can put in up to $16,000 of deferred salary, and deduct it from your income. That’s an important tax savings. Plus, you get your employer’s free 3% match (even if the employer is YOU!). Odds are that the RMD you’re taking out is smaller than what you are putting in, so you’re still saving on taxes and adding money to your protected retirement balances while on the job. That’s an unbeatable combination!