You can contribute to a Roth IRA throughout your lifetime and delay taking distributions indefinitely. This is in contrast to a traditional IRA, which prohibits you from making contributions beginning the year you turn 70 1/2, the same year the IRS requires you to begin taking distributions.
Though your age and employment status do not limit your eligibility to contribute to a Roth IRA, your annual IRA contribution cannot exceed your earned income. The IRS defines earned income as wages, salary and commissions, and self-employment income, in addition to alimony, military differential pay and nontaxable combat pay. The IRS sets an annual contribution limit. As of 2010, it is the lesser of your earned income or $6,000 if you are age 50 or older.
Due to IRS rules, you can only contribute to a Roth IRA if you are retired but hold a part-time job, earn self-employment income by selling a product or offering a service, or if you receive alimony. Your Roth IRA contribution cannot exceed amounts you make from these sources. Amounts you received from a pension or Social Security benefits don't count.
If your Roth IRA contribution exceeds your earned income in a given year, the IRS charges a 6 percent tax penalty on the excess amount. You can avoid this tax by withdrawing the excess amount by your filing deadline, along with any investment earnings your excess contribution earned. As long as you are age 59 1/2 or older, your earnings will not be subject to a 10 percent early withdrawal penalty.
Because they are not required to take distributions in their lifetimes, many retirees use Roth IRAs as an estate-planning tool to pass wealth to the next generation. By continuing to contribute to your account throughout your retirement, you can build a large, tax-sheltered inheritance for your children or grandchildren. Or, if you retire early, you can continue contributing to a Roth IRA to ensure that you will not outlive your savings.
If you are contributing to your Roth IRA because you wish to provide for your spouse or relatives after your death, it is important that you fill out paperwork with your IRA trustee to name one or more account beneficiaries. Naming a beneficiary with your IRA trustee allows the account to skip probate. The assets will pass directly to your heirs. If you name your spouse as your beneficiary, she can treat the account as her own and continue contributing to it herself. Nonspouse beneficiaries cannot contribute, but may benefit from the Roth IRA's tax shelter.