There's no age limit for opening a Roth IRA, but there are income and contribution limits that investors should be aware of before funding one. Let's look at the pros and cons. A provision of the law also encourages older workers to continue saving for retirement and to get a tax benefit for doing so. That is, the Security Act now allows people over 70 and a half years old to make tax-deductible contributions to an IRA.
Both the fact that Americans work longer than they used to, and the fact that the age requirement for making contributions to the traditional IRA was abolished, is a nod to the fact that Americans work longer than before. If you have a significant amount of money in traditional IRAs, converting some of that money into Roth money will not only help you avoid mandatory minimum distributions (RMDs), but it will also help your heirs keep more of the money you leave them by not requiring them to pay taxes on their traditional IRA that they inherited during their potentially higher income years. Jeffrey Levine, an expert in tax and financial planning, described traditional IRA contributions after the RMD era as something like a revolving door of IRA money. In the case of Roth contributions, they will benefit from tax-free capitalization in the years leading up to retirement and will also be able to withdraw tax-free funds from the account when they retire.
There are currently no mandatory minimum distributions in Roth IRAs, so your money can continue to grow tax-free for a longer period of time. When you make your first contribution to the Roth IRA and five tax years have elapsed, any profit you withdraw will pass the five-year test. In addition, income limits don't apply to contributions to a company's retirement plans, unlike IRAs. In addition, traditional IRA investments benefit even less from that tax-protected capitalization than contributions to Roth IRAs, since traditional IRAs are subject to RMDs that are ultimately subject to taxation.
The contribution limits for traditional IRA contributions that you can deduct on your tax return are the strictest; Roth IRA contributions are allowed with a higher income limit. The short answer is that additional contributions to traditional IRA after the age of RMD may make sense in a handful of situations, but not in many. If you want to save in your 70s, it would be best to avoid those tax-deductible IRA contributions altogether, Slott said. The distribution rules of a Roth IRA can also help you if you intend to leave your IRA to your heirs.
There's no minimum age limit for opening a Roth IRA, and you can contribute to someone else's Roth account as a perfect gift for parents who want to boost their children's retirement savings. For starters, custodians holding IRAs aren't required to accept contributions from savers over 70 and a half years old, according to new guidance from the IRS.