When it comes to retirement savings, your age can have a major effect on things. Depending on which type of retirement account you have, your age may define both when you can access your funds and how much money you can contribute each year. For example, rules are individually different for IRAs and 401(k)s. These regulations can become incredibly important as you near retirement. If you have questions about retirement planning, a financial advisor can help you get your plans in order.
Contribution Limits for IRAs
The 2023 contribution limit for both traditional and Roth IRAs is $6,500. Americans who are 50 or older can contribute an additional $1,000 in catch-up contributions. The IRS stipulates this so those nearing retirement can set aside a bit more.
For Simplified Employee Pension (SEP) plans, employers can contribute the lesser of 25% of an employee’s compensation or $66,000 for 2023.
For Savings Incentive Match Plan for Employees or SIMPLE IRAs, the 2023 contribution limit is $15,500 for employees under age 50 and $19,000 for employees above age 50 who are making $3,500 in catch-up contributions. Those that participate in another employer plan during the year cannot contribute more than $22,500 cumulatively. The IRA limit remains at $6,500 and the 401(k) limit is up to $22,500.
Age Limits for IRA Contributions
As mentioned above, there are also age limits for each of these accounts:
- Traditional IRAs: Although previous laws stopped traditional IRA contributions at age 70.5, you can now contribute at any age. However, required minimum distribution (RMD) rules still apply at 70.5 or 72 (73 in 2023), depending on when you were born.
- Roth IRAs: Like their traditional counterpart, there is no age limit of 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, Roth IRA beneficiaries 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 72 (73 in 2023) or 70.5, depending on the year you were born in.
- 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 72 (73 in 2023) or 70.5, depending on your birthday.
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
Having at least one retirement plan where you can stow money for your golden years is important. Making contributions to these plans 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. This does assume, however, that you can afford to continue making contributions. That may be made difficult once you’re not working, but it could pay off in the later years of your retirement.
You may also want to open multiple IRAs so you can diversify investments, tax benefits 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
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 59.5 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 59.5, 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 (RMDs) once you reach age 70.5 or 72 (73 in 2023), depending on your birthday. This goes into effect whether you are still working or not.
The RMD directive ensures 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. This, of course, assumes you meet the “qualifying” withdrawal rules the IRS has set.
Bottom Line
If you’re struggling to determine which IRA plan is right for you, their individual rules can help you decide. However, age limits are effectively eliminated from IRAs, so there’s no need to worry about them anymore. Choosing the right IRA, though, could depend more on what type of tax structure you need. A Roth IRA might be better than a Traditional IRA for individuals that want to save on taxes at retirement when they expect to earn more later than they do now.
Tips for Retirement Planning
- Choosing the right retirement savings vehicle isn’t always easy. In addition to the multiple IRA options, there are employer-sponsored plans and health savings accounts. Talking to a financial advisor can help you decide. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can 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.
