Question: Clyde in Oxford: I just turned 71 and work part time so I have some extra “fun money.” Even though I’m older than 70 ½, can I still continue to contribute to an IRA? And will I get a tax break?
A: The answer to the first part of your question is ‘yes’ thanks to the 2019 SECURE Act. Prior to this law’s passage, anyone age 70 ½ or older could not contribute to a traditional IRA (since this was the age Required Minimum Distributions, or RMDs, kicked-in). However, the SECURE Act not only bumped up the start age of RMDs to 72, it also now allows anyone who is 72 or older to continue contributing to an IRA – as long as they have ‘earned income.’
And this change makes sense on a practical level. According to Morningstar, 20% of folks age 65 or older were working (or looking for work) in 2019. This is nearly double the amount back in 1985. So, as people are working longer, it’s only fair they’re allowed more flexibility with their retirement accounts.
In 2021, you can contribute up to $7,000 to an IRA ($6,000 for anyone younger than 50) as long as you have at least $7,000 of earned income. (If your income is less than this, you can contribute up to however much you’ve earned.)
As for if you’ll get a tax break, that depends on whether or not you currently participate in a qualified retirement account (like a 401(k)). If you don’t participate, you can deduct your full IRA contribution amount. If you do, your Modified Adjusted Gross Income (MAGI) needs to be $66,000 or less to deduct your full contribution (assuming you’re a single tax filer). Deductions then start phasing out and are not deductible at all once an individual’s MAGI hits $76,000.
Here’s the Allworth Advice: The rules have changed for older workers, so feel free to take advantage! But also keep in mind that there could be other types of accounts better suited for your needs – such as taxable brokerage accounts or even a Roth IRA.
Q: Tracy in Warren County: My husband and I are trying to decide who to name as our executor. We have a few family members in mind, and even a few friends. Any suggestions for how to make this decision?
A: As the joke goes, “Very carefully.” Being an executor of an estate is a huge task – and the role only gets more complicated as the estate size increases. This person is going to be dealing with everything from settling accounts, to paying off your debts, to filing your will, to communicating with your beneficiaries. So, to start, take a look at your list of candidates. If someone isn’t organized and detail-oriented, they should come off that list. Ditto if you don’t consider them honest and responsible.
Similarly, consider the temperament of the people you have in mind. It’s best if whomever you choose is patient since the probate process can be long, and, at times, challenging. You also want someone who won’t hesitate to put in any extra work if needed – and use ‘tough love’ if necessary. Age is an important factor as well. Consider choosing someone younger than you and your husband (since they obviously need to outlive you).
The Allworth Advice is that once you decide who you would like to pick, make sure you have a formal conversation with them. Ask if they’re willing to serve in this role, and if they are, discuss your expectations. And, because they could turn you down, have a back-up in mind as well.
Every week, Allworth Financial’s Amy Wagner and Steve Sprovach answer your questions. If you, a friend or someone in your family has a money issue or problem, feel free to send those questions to yourmoney@enquirer.com.
Responses are for informational purposes only, and individuals should consider whether any general recommendation in these responses is suitable for their particular circumstances based on investment objectives, financial situation and needs. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional adviser of his/her choosing, including a tax adviser and/or attorney. Retirement planning services offered through Allworth Financial, an SEC Registered Investment Advisor. Securities offered through AW Securities, a Registered Broker/Dealer, member FINRA/SIPC. Call 513-469-7500 or visit allworthfinancial.com