According to the Internal Revenue Service (IRS), as of 2022, there is no age limit preventing investors from contributing to a traditional or Roth IRA. However, whether you can open an Individual Retirement Account (IRA) or how much you can put in depends on other eligibility requirements, such as: B. the requirement of an earned income. Additionally, IRA age limits still affect when distributions from traditional IRAs must be assumed.
Here’s a quick look at the main rules for the two types of IRAs.
The central theses
- There is no age limit for contributing to Roth or Individual Retirement Accounts (IRAs).
- Thanks to the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act, you can now make contributions to traditional IRAs beyond the previous age limit of 70½ years.
- The Internal Revenue Service (IRS) requires you to have earned income in order to contribute to either type of IRA.
Types of IRAs
A traditional IRA allows investors to make contributions and receive a tax deduction equal to the amount of contributions in the tax year in which they were made. In return, you pay income taxes on your withdrawals or distributions in retirement.
A Roth IRA does not provide for a tax deduction for contributions. However, any money withdrawn after the age of 59 is tax-free, meaning your withdrawals are not subject to income tax.
You have 15 months to make contributions for a given year — typically January 1 through April 15 (or by that year’s tax return deadline) of the following year — and the Internal Revenue Service (IRS) allows you Invest money in a wide range of investments, including stocks, bonds, mutual funds, and exchange-traded funds (ETFs).
However, there are certain rules and restrictions, including contribution limits and income requirements.
As previously mentioned, there is no age restriction to open or contribute to Roth and traditional IRAs. There is also no age limit if you are forming a new IRA to which you are transferring or transferring assets from another IRA or eligible retirement plan, e.g. B. An employer-sponsored plan like a 401(k).
Until recently, there were age restrictions on contributions to traditional IRAs, but that changed when the US Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act in 2019. Previously, you were only allowed to make regular contributions if you had not yet reached the age of 70 in the year of payment.
The maximum amount you can contribute – your contribution limit – to either a traditional or Roth IRA for tax year 2022 is $7,000 if you are 50 years of age or older – $6,000 plus a catch-up contribution of $1,000 (rising to $7,500 per year 2023). – $6,500 plus $1,000 catch-up contribution).
The annual contribution limit of $6,000 or $7,000 for 2022 if you are 50 years or older applies to all of your IRAs combined, Roth and traditional, not per account. In 2023, the combined limit for all your IRAs combined will increase to $6,500, or $7,500 if you are 50 years of age or older.
For both types of IRAs, you must have earned income, or what the IRS calls “taxable compensation,” in order to contribute. These include wages and salaries, commissions, self-employment income, alimony, as well as separate alimony and tax-free combat wages. Income and profits from assets, interest and dividend income, pension or annuity income, deferred compensation and income from certain partnerships are not counted.
If you make less than $7,000 in 2022 (or $7,500 in 2023), you can only contribute as much as you make. So if you only make $5,000 in a year, that’s the maximum amount you can contribute.
In the case of a Roth IRA, your tax status and high income may also limit your contribution. For example, in 2022, single parents must have a modified adjusted gross income (MAGI) of no more than $144,000 ($153,000 in 2023) to make the full contribution. Contributions will be phased out starting at a MAGI of $129,000 ($138,000 in 2023).
The tax deduction for contributions to Traditional IRAs may vary based on certain conditions. If a retirement plan covers you or your spouse, you may not be allowed to deduct some or all of your contributions from your taxes. However, your income is a key determinant, as is your tax filing status, such as:
However, if you and your spouse are not covered by a plan at work and your tax status is single, married, filing jointly or separately, you can claim the full tax deduction regardless of your income.
Is there an age limit for contributions to the Individual Retirement Account (IRA)?
You can open or contribute to an Individual Retirement Account (IRA) at any age, but you must have what the Internal Revenue Service (IRS) considers earned income. If you earn less than the annual contribution limit, you can only deposit as much as you earn that year.
What does the IRS consider earned income?
Salary, wages, commissions, tips, bonuses, self-employment earnings, taxable non-tuition fees, scholarship payments, and non-taxable combat wages are considered earned income by the IRS. Taxable maintenance payments and separate maintenance payments for divorce or separation judgments that were enforced on or before December 31, 2018 also count as earned income.
When do I need to take Minimum Distributions (RMDs)?
When you turn 72, you must begin withdrawing a minimum required distribution (RMD) from your tax-advantaged retirement accounts, such as a traditional IRA or 401(k) plan. Roth IRAs are not subject to the RMD rules, but Roth 401(k)s are unless you are still employed by the company sponsoring the plan.
The final result
You can open and contribute to an IRA at any age, as long as you have an income. If you earn too much, your contributions to a Roth IRA will be reduced or eliminated. If you or a spouse contributes to an employer’s retirement plan, you may not be allowed to deduct all or part of your contribution to a traditional IRA.