For Older Workers: How Long Can You Contribute to Your 401(k)?

Dear Carrie: I am over 73 years old. Can I still contribute to my 401(k) and, if so, how much per year? A Reader

Dear Reader: You can indeed! As long as you’re working and your employer offers a 401(k) plan, you’re eligible to contribute to it. How much you can contribute depends on your income and the specifics of your company’s plan, but theoretically, you could sock away up to $22,000 each year in your 401(k). Workers of any age can contribute up to $16,500, and because you’re over 50, you’re eligible to contribute an additional $5,500 as a catch-up contribution.

Saving is generally never a bad thing, but saving through a 401(k) plan or other tax-advantaged account is especially rewarding. You’re saving with pretax dollars. Earnings grow tax-free. And if your company matches some or all of your savings, you really get an extra boost.

WORKING: GOOD FOR THE WALLET

One of my most familiar refrains is the importance of saving for retirementand that’s true for virtually everyone, especially people who are planning on leaving the workforce. But one way to reduce the drain on your savings is to continue to work.

Current income means you reduce or postpone dipping into capital for current living expenses, so your retirement savings can potentially continue to grow.

If you’re still working, you can delay taking Social Security benefits until you’ve reached the IRS-defined full retirement age the longer you wait, the greater your benefit, up to age 70 (check SSA.gov for details). In your case, you’re already eligible for your maximum Social Security payment, and I’m assuming you’re receiving it.

In fact, working becomes much more attractive for those past the full retirement age; if you take an early, reduced benefit and continue to work or go back to work part time, you’ll lose part of your retirement benefit. But after you reach the full retirement age, you can earn as much as you like with no penalty.

If you’re lucky enough to work for a company with a pension plan, working longer may result in a higher benefit.

As long as you’re working, you generally don’t need to start taking the IRS-mandated Required Minimum Distributions from your 401(k) plan, which normally must begin in the year after the year that you turn 70-and-a-half, unless you have an ownership interest of more than 5 percent in the company, in which case distributions are required.

But if you have another retirement plan, including a traditional IRA, SEP IRA, SIMPLE IRA or even another 401(k), 403(b) or 457 plan, you must take minimum distributions, regardless of whether you’re working or not. Finally, I should point out that Roth IRAs never require a minimum distribution.

And this is at the heart of your question, of course, if you’re working for a company with a defined-contribution plan like a 401(k), working means the chance to shelter current income from taxes and take advantage of any employer match.

You didn’t ask about how to invest your 401(k) savings, and I can’t give specific advice about where to put your money. But I do want to point out that your time horizon will have an impact on your investment decisions. For example, if you know for a fact that you’ll need this money in a couple of years, you’d likely want to invest differently more conservatively than if you were planning on leaving these assets invested for decades. It might be a good time to meet with a financial planner and get a holistic overview of your financial situation, both assets and needs.

AND WORKING CAN BE GOOD FOR THE SOUL

There are tons of financial reasons to keep working past what many people consider the age of retirement, but I think people should consider working longer (or going back to work) for non-financial reasons as well.

I believe working is good for you! It’s easy to complain about hours and the demands of the working world, but working can be stimulating and energizing. It can give you a sense of purpose. Add structure to your day. And for a lot of people, the workplace offers a social outlet as well.

Probably most of us fantasize about retirement, especially when the alarm goes off on another Monday morning, but being productive and engaged can generate benefits that cannot be measured in dollars and cents.

Good luck!

Carrie Schwab-Pomerantz, CERTIFIED FINANCIAL PLANNER(tm), is president of Charles Schwab Foundation and author of It Pays to Talk. You can e-mail Carrie at askcarrie@schwab.com. This column is no substitute for an individualized recommendation, tax, legal or personalized investment advice. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.