Retire Early but Still Save More? Here's How Retirees Can Keep Funding IRAs

Many people think retirement means stopping all contributions to IRAs. But here’s the reality: you can absolutely keep funding Traditional and Roth IRAs after you’ve retired—as long as you meet one key requirement. The catch? It’s not complicated, but there are important rules to know, especially if you’re eyeing that Roth IRA for other financial goals like buying a house.

The Golden Rule: Earned Income is Your Ticket

The biggest misconception is that IRAs are only for working folks. The truth is simpler: if you have earned income, you’re eligible to contribute. This changed significantly under the SECURE Act of 2019, which eliminated the previous age-70.5 cap on Traditional IRA contributions.

What counts as earned income? Think wages, salaries, self-employment income, bonuses, and freelance work. What doesn’t count? Pension payouts, Social Security checks, and investment returns. This distinction matters because it determines whether your post-retirement side hustle, part-time consulting, or freelance work can fuel your IRA contributions.

How Much Can You Actually Add?

For 2024, the numbers are straightforward:

• Standard contribution: $7,000 per year
• Age 50 or older: $8,000 per year (includes $1,000 catch-up contribution)

Here’s where people often trip up: these limits apply across both account types combined. If you contribute to both a Traditional IRA and a Roth IRA in the same year, your total cannot exceed $7,000 (or $8,000 if you’re 50+). You can’t max out both separately.

Traditional IRA vs. Roth IRA: Which Works Better for Retirees?

The choice comes down to your tax situation now versus later.

Traditional IRA approach: Contributions are tax-deductible in the year you make them, and money grows tax-deferred. You pay taxes on withdrawals in retirement. This works well if you expect a lower tax bracket eventually, though post-SECURE Act, there’s no age limit stopping you anymore.

Roth IRA approach: You contribute with after-tax dollars (no deduction), but here’s the advantage—withdrawals are tax-free in retirement if conditions are met. Plus, Roth contributions can be withdrawn anytime tax-free, even in retirement. This flexibility makes Roth accounts attractive if you might need early access to funds, including scenarios where you’re saving for a major purchase like a house.

The Five-Year Rule: The Roth Catch Everyone Forgets

Planning to use your Roth IRA for something like a house down payment? Here’s what you need to know about the five-year rule.

To withdraw earnings (not contributions) tax-free from a Roth, the account must have existed for at least five years. This applies regardless of your age. Roth contributions themselves can always be withdrawn tax-free—it’s the earnings that have the five-year waiting period.

Example: Open a Roth IRA in 2024, and you can’t access the earnings tax-free until 2029, even if you’re already retired and over 59.5.

The five-year rule also applies to Roth conversions. Converting money from a Traditional IRA to a Roth? The converted amount gets its own five-year clock. Withdrawing converted funds early triggers taxes and penalties.

Income Limits for Roth: Don’t Assume You’re Eligible

This is where retirees sometimes get surprised. Roth contributions have income thresholds:

• Single filers: MAGI (Modified Adjusted Gross Income) below $146,000
• Married filing jointly: MAGI below $230,000

Higher earners can make reduced contributions, but once you exceed these caps, you’re out. This is different from Traditional IRAs for retirees—if you have earned income, there’s no income limit for Traditional contributions.

Real-World Scenarios for Retirees

Scenario 1: You retired but picked up consulting work Your consulting income counts as earned income. If you earned $10,000 from consulting, you can contribute up to $7,000 to either IRA type (assuming you’re under the Roth income limit). This applies whether you’re 60, 70, or 80.

Scenario 2: You’re considering a Roth for future flexibility Since Roth contributions are always accessible, some retirees use Roth IRAs as emergency funds or for specific goals. If you’re thinking about pulling from an IRA for something like a house purchase, Roth contributions (not earnings) give you that option without taxes or penalties.

Scenario 3: You have investment income but no earned income Social Security, pensions, and dividend checks don’t count as earned income. If these are your only income sources, you can’t contribute to any IRA. Period. It’s a hard stop.

What Happens if You Mess Up?

Contributing to an IRA without earned income triggers IRS penalties. Any contribution made without qualifying income is considered excess. You’d need to withdraw both the contribution and any associated earnings to avoid a 6% annual penalty. Not worth the risk.

The Bottom Line for Retirees

Retirement doesn’t lock you out of IRA contributions—it only requires earned income. Whether you choose Traditional or Roth depends on your tax picture and financial goals. If you’re considering a Roth IRA specifically because you might need the funds later (like for a house down payment), remember that contributions are always accessible without tax consequences, while earnings follow the five-year rule.

The flexibility to keep growing tax-advantaged retirement savings, even after you’ve stopped working, is a powerful wealth-building tool. Just make sure you understand which type aligns with your situation and watch those income limits if Roth is your target.