“Last year, my wife and I realized our dream. We sold our PA home and our little shore house and we moved to a great new home at the shore. Everything went so smoothly and we are very happy in our new home.
During the transition, we ended up taking about $40,000 out of our IRAs for moving and other expenses.
Now that we are in our new house, our living expenses have dropped almost $1,500 a month. My idea is to put that $1,500 back into our IRAs for the next couple of years to get our accounts back where they were.
We’re both 66 and won’t need to take withdrawals from our IRAs until we hit the RMDs.
Does this make sense to you?”
Maybe. It depends.
I am so very happy that your dreams have come true in such a wonderful way. I certainly support your intention of bolstering your retirement funds to the greatest extent possible. My question to you is will either of you be working during the next few years.
IRS code allows you to return dollars to an IRA, but only if it is done within sixty (60) days. That no longer applies to you. The IRS code allows you to contribute to an IRA up to age 70 – if you have earned income. And only up to the IRA contribution limits allowed.
For the two of you, if you have earned income (as an employee or self-employed net income) you can currently contribute up to $7,000 each year to a traditional, deductible IRA (or Roth IRA, but that’s a discussion for another time) so a total of $14,000 annually. However, a second limiting factor is you may not deduct more than 100% of your earned income. So, if you have a part-time job paying just $9,000 per year your maximum contribution would be limited to $9,000.
Your plan of ‘returning’ $1,500 each month ($18,000 each year) will not work. If you have no earned income, you will not be allowed to contribute any of these dollars to your IRAs.
Do not despair, if this is your circumstance, you can still put your $1,500 aside each month in investments of your choosing. You should examine your options for both investment return opportunity and tax advantages. Consider working with a financial advisor to explore your options and select the choice that best fits you.
If you have questions or comments, please send them to Gene@AskMtM.com