Can You Still Contribute to an IRA When Collecting From an IRA?

Withdrawal Penalty

When a worker withdraws money from an IRA before the age of 59 1/2, the worker usually has to pay a penalty of 10 percent of the taxable portion of the withdrawal. If the worker contributes money to the IRA during the current year, this tax penalty will not apply to the money deposited during the year, and the worker can withdraw money up to the amount of the contribution without paying a penalty.

The deadline for a tax free withdrawal is the due date to file a federal income tax return. According to the Internal Revenue Service, if the taxpayer files for an extension, the taxpayer can withdraw money before the due date for the extension without incurring the withdrawal penalty. The taxpayer must also withdraw any interest income, and must include the total withdrawal amount when reporting income for the current year.

If a worker withdraws money from an IRA, so the IRA does not have the maximum amount of funding for the year, the maximum contribution limit will still apply during the next year. Any money that a worker adds to the IRA after filing a tax return will count toward the next year's contribution. If the worker contributes more than the maximum contribution, the worker may have to pay additional taxes, so a withdrawal can allow the worker to avoid these penalties. According to the Internal Revenue Service, the Safe Harbor 401k offers the highest IRA contribution limit, which is a maximum of $49,000 per year of total deposits by both the employer and the employee as of 2009.

Once the worker reaches the age of 70 1/2, the worker must collect money from the IRA and can no longer add funds to it. The worker may only add wage income to the IRA, so the worker cannot add money that the worker receives from a pension or another retirement plan. A worker can add alimony payments to the IRA, or add income if the worker's spouse earns wages during the year.