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Can you save tax-free after 70 1⁄2 ?

I’m collecting Social Security and a pension and tapping my 401(k) and IRA as needed. After I turn 70 12 next May, I must take required minimum distributions, or RMDs. I’ve just started a consulting job paying about $10,000 a year. Can I make any IRA contributions to reduce taxes on this income? My wife collects Social Security and isn’t working. Can we make IRA contributions in her name to reduce our taxable income? We file a joint return.

You can contribute to a spousal IRA for your wife until the year she turns 70 1⁄2. This year is the last year for which you can contribute to your own IRA, but you can make a 2017 contribution until April 15, 2018. Since you’re both over 50, the maximum contribution to each IRA is $6,500. But your combined contributions can’t exceed your earned income.

Other possibilities: At any age, you can contribute self-employment income to a SEP-IRA or an individual 401(k), both readily available at major mutual fund companies and brokerage firms. These accounts are both subject to RMD rules, but your potential deductible contributions would exceed your RMDs, points out Barry C. Picker, a Brooklyn tax accountant.

An individual 401(k) plan lets you defer 100 percent of your annual self-employment income up to $18,000. Your first RMD on a $10,000 401(k) balance would be about $365.

With $10,000 of 2017 net self-employment income, your maximum SEP-IRA contribution would be about $2,000; and your first RMD on a $2,000 balance would be about $73.

You can also contribute earned income to a tax-free Roth IRA at any age, notes Ed Slott, a Rockville Centre tax accountant. Roth contributions aren’t deductible, but if your taxable income is modest, tax deductions have limited value.

THE BOTTOM LINE Self-employment income gives you financial options you should discuss with your tax accountant. It can be worthwhile to make tax-deferred contributions to an account, even when you must also take taxable distributions.


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