28 Oct I’m 70. Am I too old to save in a traditional IRA?

Q. When is the time I can no longer contribute to an IRA? I’ll be 70 1/2 in December 2019.
— Still saving

A. It’s great that you want to keep setting aside money for retirement, but there are rules to follow.

And those rules could change in the coming months.

You won’t be able to contribute to a traditional IRA this year. IRS guidelines that state that you can’t make a contribution for the year in which you turn 70 ½, said Jeanne Kane, a financial planner with JFL Total Wealth Management in Boonton.

But Congress could change that.

The Secure Act is a bipartisan bill that passed the House of Representatives by practically a unanimous vote in May of this year, Kane said. If passed by the Senate, it will raise the age when you must stop contributing to an IRA and when you start taking RMDs to 72.

Another bill, the RESA Act, would also make similar changes.

But for now, Required Minimum Distributions (RMD) need to start from your traditional IRA by April 1st in the year following the year you turn 70 ½.

You won’t be able to contribute this year and you will be forced to take money out of your IRA annually going forward, she said.

Even though you can’t contribute to a traditional IRA, there are still options to save:

One option is to contribute to a Roth IRA.

Kane said Roth IRAs are funded with after-tax earned income. The contribution limits are the same as a traditional IRA, which is $6,000 plus a $1,000 catch-up contribution for those over age 50, or up to your earned income amount up to that limit.

Roth IRAs allow you to contribute at any age if you have earned income, Kane said.

“The ability to contribute to a Roth IRA phases out at higher income levels,” she said. “It’s based on your modified adjusted gross income (MAGI). MAGI is the total of your household’s adjusted gross income and tax-exempt interest income.”

Kane said you’ll be able to contribute the maximum if you earn up to $122,000 as a single or $193,000 if you’re married filing jointly. Once MAGI reaches $137,000 for singles or $203,000 for those married filing jointly, you will no longer be able to contribute. Between these two amounts, you will be limited on the amount that you can contribute, she said.

“A benefit of the Roth IRA is that you won’t have to take RMDs,” she said. “Because Roth IRAs are funded with after tax dollars, the IRS doesn’t want their cut when you take the money out. They’ve already received it and so they don’t force you to take money – and pay taxes on it – out of your account when you may not need it.”

When you do take money out of the Roth IRA, it’s all tax free.

Another option is to contribute to a 401(k) if you’re – if you’re still working.

Or you can contribute to a taxable account.

“While you won’t get the tax deferral benefits from an employer sponsored plan or the tax-free growth of a Roth IRA, you still benefit from only being taxed on the earnings portion of your investment when you make a withdrawal,” Kane said.

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This story was originally published on Oct. 28, 2019.

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