Never Too Late: Retirement Savings After 70

It’s never too late to start planning for retirement, and recent changes in legislation have made it easier for those who may be later in their career or retirement journey to open or contribute to an Individual Retirement Account (IRA).

Understanding the Age Limit for IRAs

For years, there were restrictions on contributing to an IRA based on age, but the SECURE Act of 2019 eliminated the age limit for making contributions. Now, as long as you have what’s considered “earned income,” you can contribute to an IRA, regardless of your age.

So, what exactly constitutes “earned income?” It primarily refers to income you receive from wages, salary, or self-employment. Income sources like Social Security benefits, distributions from other retirement accounts, or spousal support do not count as earned income and therefore wouldn’t allow you to contribute to an IRA.

Required Minimum Distributions (RMDs) and Traditional vs. Roth IRAs

While you can contribute to a Traditional IRA at any age with earned income, it’s essential to understand Required Minimum Distributions (RMDs). Once you reach age 73, the IRS requires you to start taking minimum withdrawals from your Traditional IRA each year.

Did you know the IRS provides Form 590-B to help calculate your RMD? Alternatively, a financial planner can assist you with this process.

Roth IRAs operate differently. While you don’t have to take RMDs during your lifetime with a Roth IRA, they do apply to beneficiaries who inherit a Roth IRA after your passing. This is a key distinction to consider when planning your estate.

Contribution Limits and Tax Deductibility

For 2024, the IRA contribution limit is $7,000. If you’re age 50 or older, you’re eligible for an additional “catch-up” contribution of $1,000, bringing your total potential contribution to $8,000. However, the ability to deduct your IRA contributions from your taxes depends on your income and filing status.

• Unmarried Filers: Full deduction up to $77,000, partial deduction between $77,000 and $87,000, no deduction above $87,000.
• Married or Widowed Filers: Full deduction up to $123,000, partial deduction between $123,000 and $143,000, no deduction above $143,000.

Keep in mind that these income limits are subject to change annually, so it’s always a good idea to check the latest IRS guidelines. If your income exceeds these limits, you may not be able to deduct your IRA contributions, but you can still contribute to the account and benefit from tax-deferred growth.

Conclusion

The elimination of the age limit for IRA contributions is a significant benefit for those looking to bolster their retirement savings, regardless of their age. While RMDs will eventually apply to Traditional IRAs, and Roth IRA distributions are subject to rules for beneficiaries, the opportunity to continue contributing with earned income is a powerful tool for securing your financial future. Don’t let age be a barrier – start saving today!