Age may be just a number, but it’s pretty important when it comes to retirement savings. Depending on which account you have, your age may define both when you can access your funds and how much money you can contribute each year. Since different IRAs have different rules, we’ve outlined the IRA contribution age limit for each of the most common accounts below.
Contribution Limits for IRAs
The 2021 contribution limit for traditional and Roth IRAs is $6,500 or your taxable income for the year if less than $6,500. Americans 50 years of age or older can contribute an additional $1,000 in catch-up contributions.
For Simplified Employee Pension (SEP) plans, employers can contribute 25% of an employees’ compensation or $58,000 for 2021 – whichever is lower.
For Savings Incentive Match Plan for Employees (SIMPLE) IRAs, the 2021 contribution limit is $13,500 for employees under age 50 and $16,500 for employees above age 50. Those that participate in another employer plan during the year cannot contribute more than $19,500 cumulatively.
Age Limits for IRA Contributions
As mentioned above, there are also age limits for each of these accounts:
- Traditional IRAs: You can no longer contribute starting in the calendar year you reach 70 1/2 years of age. If you file jointly with a younger spouse, you may be able to skirt the age limit by making spousal contributions to their account.
- Roth IRAs: There is no age limit. So long as you or your spouse earns income, you can continue to make contributions indefinitely.
- SEP IRAs: There is no age limit. Employers can contribute to your plan no matter how old you are.
- SIMPLE IRAs: There is no age limit. And employers must continue to make matching or nonelective contributions to your plan regardless of your age.
Make some retirement money moves recently? 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.
Why You Should Know IRA Contribution Age Limits
A 2018 study from Northwestern Mutual found that 1 in 3 Americans has less than $5,000 saved for retirement. Another 21% don’t have any retirement savings at all. Having a retirement plan where you can stow money for your golden years is important. Making contributions to that plan is even more important. Having a limit on when you can stop those contributions may determine which account you choose, though.
If you don’t plan on stopping work by the time you hit retirement age, you may want to continue making IRA contributions. Since traditional IRAs are the only plans that have age limits, this setback might push you into looking at other options, like a Roth, SEP or SIMPLE IRA. That being said, a traditional IRA is not necessarily a bad choice. The money you contribute only gets taxed when you make withdrawals.
You may also want to open multiple IRAs so you diversify investments, tax benefits, age limits and withdrawal regulations. Just remember that increasing the number of accounts you have does not necessarily increase your annual contribution limit.
Other IRA Age Rules to Consider
While there are maximum age limits for some IRAs, you can begin contributing to traditional, Roth and SIMPLE IRAs at any age. Only SEP IRAs require participants 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 1/2 or face certain circumstances. This rule deters working Americans from tapping their nest egg prematurely. With a Roth IRA, however, you can withdraw your original contributions at any time without paying a penalty. Withdrawing earnings, on the other hand, would trigger the 10% charge.
Just as you can only contribute to your IRA until you reach a certain age, most IRAs enforce required minimum distributions (RMD) once you reach age 70 1/2. And that goes into effect whether you are still working or not. The RMD directive ensure that you pay taxes on your savings after enjoying years of tax-deferred growth. As you may have guessed, Roth IRAs are the only accounts that do not require minimum distributions at any age. Since these accounts are funded with after-tax dollars, Uncle Sam will not benefit from your withdrawals. The only times the RMD rule applies to Roth IRAs is when the Roth is inherited or part of a 401(k) plan.
If you’re struggling to determine which IRA plan is right for you, the age limit can help you make a decision. Having an age deadline may turn you off from choosing a traditional IRA over another option that doesn’t have the same restriction.
Tips for Retirement Planning
- Choosing the right retirement savings vehicle ins’t always easy. In addition to the multiple IRA options, there are employer-sponsored plans and health savings accounts. Talking to a professional can help you decide. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
- Don’t be afraid to make a change if you feel your first choice wasn’t right. The retirement plan you started a decade or two ago may not offer the benefits you need now. Luckily, converting your traditional IRA to a Roth IRA is fairly simple – especially if you plan on keeping the same brokerage firm.
- Always be on the lookout for savings incentives. If your employer offers a sponsored savings plan with matching contributions, be sure to contribute enough to capitalize on it. Think you don’t make enough money to save for your golden years? The Saver’s Tax Credit allows low- to moderate-earning filers to receive a tax credit of up to 50% of their retirement savings.
Photo credit: ©iStock.com/katleho Seisa, ©iStock.com/CatLane, ©iStock.com/katleho Seisa