Last Updated on March 17, 2024 by Ben
The direct point of this blog post is to answer the question At What Age Can A Person No Longer Contribute to A Traditional IRA? We will start discussing the age requirements for contributing to a traditional IRA. If you are over 70 ½, you cannot contribute any more money to your account and must take the required minimum distributions from it each year. At what age can a person no longer contribute to a traditional IRA?
Why You Should Know IRA Contribution Age Limits
In 2018, a study from Northwestern Mutual found that 1 out of 3 Americans only has $5,000 saved for retirement or less. Another 21% have no money saved at all. You should make a plan where you can save money for your golden years. Contributions to your plan are very important. They make the account better. If you want to stop them one day, it might matter which account you choose.
If you are not going to stop working by the time you retire, it is a good idea to continue making IRA contributions. Traditional IRAs are the only ideas with an age limit, so this might make you want to look at other options like Roth IRAs or SEP IRAS. A traditional IRA is not bad. The funds you put in are only taxed when you take it out.
You may want to open multiple IRAs. You can have different investments, benefits, and limits on when you can take the money out. But if you add more IRAs, your annual contribution limit might not increase.
The IRA Maximum Age Limit Explained
IRAs are popular because they can hold many different types of investments, such as stocks, bonds, mutual funds, and ETFs. They are a good choice for people who have been investing for a while. For the year 2019, it is $6,000 for contributions. If you are 50 or older, you can make a $1,000 catch-up contribution. So the total will be $7,000.
This contribution will be a tax deduction when you do it for a traditional IRA. But, according to the IRS, once you are 70 ½ years old (old), you cannot make these contributions.
In today’s world, people are working a lot. Some people work part-time because they need more money or because they like the extra work. When you are above 70 years old, you cannot put more money into a 401(k) account. But, you can still save for retirement with a traditional IRA.
This rule is in place because when you retire, you have to take a certain amount of money from your traditional IRA once you reach age 70 ½. There are no age limits for Roth IRAs, so this does not apply. How much you need to take out each year is based on a formula that takes into account your age and the size of your retirement account.
The SECURE Act, however, provides older people with more options.
You can make an IRA contribution regardless of your age. You need to have enough taxable compensation, which would be money you earn from a job that is not taxed. The money you earned is called taxable compensation. It can be from a salary, wages, or self-employment income. If your minor child earns money, they might have a Roth IRA account that the parents can establish for them.
Age Limits for IRA Contributions
Traditional IRAs
You can now contribute to a retirement account after you are 70 1/2 years old. But, there is one rule if you are born after 1951. You have to take out the money at 70 1/2 or 72, depending on when you were born.
Roth IRAs
There is no age limit to the IRA. As long as you or your spouse get a paycheck, then you can contribute. This means that there will not be an RMD, and this is different from when you are alive. But if your relatives want the money, they might have to do an RMD, so they don’t get penalties.
SEP IRAs
Employers can give you money for your retirement. You do not have to be old to get it. But if you are older, then you will need to take money out of the plan at a certain age.
SIMPLE IRAs
There is no age limit to have a retirement account. Employers have to make contributions even though they are old or young. You will need to take RMDs at age 72 or 70 1/2, depending on your birthday.
What Does an End to the IRA Age Restriction Mean for Retirement Savers?
“Removing the age cap should be helpful to those who continue working past age 70 ½,” said Carroll. “This allows them to continue contributing to their IRAs, providing them with a way to further secure their future, provide for a beneficiary or build a legacy for their heirs.”
Socking away more offers people a way to control what they do with their money. Some people put it in an IRA, which means they have a lot of choices about what to do with it.
Ray Carroll sees an opportunity for people to have a greatly increased IRA contribution limit. In recent years, there has been conversation about the potential lifting of traditional IRA limits as related to the change in age at which required minimum distributions are taken. The combination creates a unique opportunity where retirement savers can account for both changes by increasing their contributions without anticipating a withdrawal. “
One of the best deeds it does is give an individual a long time to do Roth conversions. This way, they don’t have to pay as much taxes on their Social Security benefits. It gives them a chance to grow their wealth and come up with a tax strategy that works for them.”
SECURE Act Allows Traditional IRA Contributions Past Age 70½
The SECURE Act made a change to IRAs. Before the SECURE Act, you were not able to make contributions to an IRA if you were over the age of 70½. Now, there is no age limit on traditional IRA contributions. People of any age can make Traditional IRA contributions if they are eligible. The only requirement now is for you to have eligible compensation.
Other IRA Age Rules to Consider
Some IRAs have an age limit. But you can contribute to a traditional IRA when you are any age. A Roth IRA and SIMPLE IRA also don’t have an age limit, but only SEP IRAs need people to be at least 21 years old. Each of these accounts must not have more than the amount of money you earn in a year. There may be other requirements, like being young. But this won’t stop you from saving for your future.
When you want to access your retirement funds, you can only do it if you are 59 1/2 years old or if you have certain circumstances. This rule stops working Americans from taking money out of their nest eggs too early. With a Roth IRA, you can withdraw your original contributions at any time without paying the penalty. If you want to withdraw the money that you earned, then it will cost 10%.
As you grow older, your IRA can only hold so much money. This is because you have to take out a certain amount each year. If you do not take out enough money, the IRS will charge you more taxes when they do their yearly check-up on your account. The RMD directive is a rule that you have to pay taxes on your savings after you have enjoyed years of tax-deferred growth. Roth IRAs are the only accounts that don’t require minimum distributions at any age. There are two accounts that are not taxed. One is a Roth IRA, and the other is a 401K.
For both of these, you do not have to pay taxes when you withdraw money from them. The RMD rule only applies when someone who inherited your Roth IRA or someone who took over your 401K account takes out money from it.
Summary
Choosing the right retirement savings vehicle isn’t always easy. In fact, it can be totally confusing trying to determine which IRA plan is best for you and your family.
When it comes to selecting the right retirement savings vehicle, one of the most important factors is whether or not an individual will be able to contribute after they reach a certain age.
Be sure to talk with your financial advisor about how much money will be needed each year during retirement so that you don’t outlive your savings by too many years.