Under the new SECURE Act, if you have earned income, there is no age limit for contributing to a traditional IRA (previously, you had to stop doing so the year you were 70 and a half years old). This change places traditional IRAs on a par with Roth IRAs, which never had an age limit. 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.
Customers who are still working after age 70 and a half can generally continue to contribute to employer-sponsored 401 (k) accounts and SEP IRAs. In fact, employers must continue to make employer contributions to the SEP IRA of an employee over 70 and a half years old if they make similar contributions to the accounts of younger employees. Although earned income is required to make an IRA contribution, income limits apply to IRA contributions regardless of age. In addition, contributing to an IRA at this age can have unexpected planning implications, such as changing your charitable giving strategy.
However, a related provision, which received less attention, allows account owners to continue making contributions to traditional IRAs after age 72, as long as they have earned income. 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. However, you may not be able to deduct all of your traditional IRA contributions if you or your spouse participate in another retirement plan at work. 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.
The rules for contributing to an IRA after 70 and a half years depend on whether the account is a traditional IRA, a Roth IRA, or an SEP IRA. But if you can make a contribution to the IRA, should you? Or would it be better if you saved in a taxable account? If you want to save in your 70s, it would be best to avoid those tax-deductible IRA contributions altogether, Slott said. 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. 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.
However, you can still contribute to a Roth IRA and make cumulative contributions to a Roth or traditional IRA, regardless of your age.