It used to be that American workers set their sights on retiring at 65; that was the magic age, the golden number. Then, things began to change. People were living longer, so Social Security began to gradually increase the age at which they could draw a full Social Security benefit. The cost of healthcare grew exponentially, and Inflation pushed prices higher than pre-retirees had planned for—they just couldn’t afford to retire at 65.
For those reasons and more, Americans are working longer than ever before. In the demographic of workers age 55 and above, the percentage of workers age 65 and older has increased from 23% in 2000 to 29.5% in 2023 and it’s expected to go even higher.
With all that doom and gloom, there is a bright spot for those saving for retirement using an IRA. There is no longer a maximum age at which you can contribute to a traditional IRA as long as you have earned income. As of 2019, the age limit restriction was removed.
Age Limits for IRA Contributions
- Traditional IRAs: Although previous laws stopped traditional IRA contributions at age 70 ½, you can now contribute at any age. However, required minimum distribution (RMD) rules still apply at 73 in 2024 and 2025. The RMD age rises to 75 in 2033.
- Roth IRAs: Like their traditional counterpart, there is no age limit for Roth IRA contributions. So long as you or your spouse earns income, you can continue to make contributions indefinitely. There are no RMDs with Roth accounts. However, beneficiaries of inherited Roth IRAs may need to take RMDs to avoid penalties.
- SEP IRAs: There is no age limit. Employers can contribute to your plan no matter how old you are. But you have to start taking RMDs at age 73 in 2025.
- SIMPLE IRAs: There are no age limits with this type of IRA either. Additionally, employers must continue to make matching or non-elective contributions to your plan regardless of your age. However, you still need to take RMDs at age 73 in 2025.
Keep in mind that contribution and age limits do not apply to rollovers, conversions or transfers between retirement accounts. You can initiate these transactions no matter your age, and the amount will not count towards your annual contribution limit.
Other IRA Age Rules
You can begin contributing to traditional, Roth and SIMPLE IRAs at any age. Only SEP IRAs require participants to be at least 21 years of age. For each of these accounts, your contributions must not exceed the amount of taxable income you earn that year. There may be other eligibility terms, but your youth won’t hold you back from putting money away for your future.
When it comes to accessing your retirement funds, most plans only allow penalty-free IRA withdrawals when you reach age 59 ½ or face certain circumstances. This rule deters working Americans from tapping their nest egg prematurely. With a Roth IRA’s after-tax status, however, you can withdraw your original contributions at any time without paying a penalty. Withdrawing earnings before age 59 ½, on the other hand, would trigger the IRS 10% early-withdrawal penalty.
While you can contribute to an IRA at any age, most IRAs enforce required minimum distributions (RMDs) once you reach age 73 (75 if you were born in 1960 or later). This goes into effect whether you are still working or not. The RMD rule makes sure that the IRS gets what the agency says you owe “after enjoying years of tax-deferred growth.”
Bottom Line
No matter how long you work, whether by choice or by necessity, you can make a contribution to your IRA. And you can make that contribution as late as April 15 or tax day, for the previous year.
This information is presented for informational purposes only and does not constitute an offer to sell, or the solicitation of an offer to buy any investment products. None of the information herein constitutes an investment recommendation, investment advice or an investment outlook. The opinions and conclusions contained in this report are those of the individual expressing those opinions. This information is non-tailored, non-specific information presented without regard for individual investment preferences or risk parameters. Some investments are not suitable for all investors, all investments entail risk and there can be no assurance that any investment strategy will be successful. This information is based on sources believed to be reliable and Alhambra is not responsible for errors, inaccuracies, or omissions of information. For more information contact Alhambra Investment Partners at 1-888-777-0970 or email us at [email protected].
