What is the Age Cut Off for a Roth IRA?

Roth IRAs are not just for young people, as long as you meet the criteria regarding income and understand how much you may contribute and when you are eligible for penalty-free withdrawals. A recent article, “Are You Too Old to Benefit From a Roth IRA?” from U.S. News & World Report, explains the benefits and requirements for older workers considering a Roth IRA.

Requirements for a Roth IRA

Once you meet the qualifications, you can add funds to a Roth IRA at any age. In 2024, the contribution limit Is $7,000 or $8,000 if you are age 50 or older. The account must be open for at least five years to take penalty-free withdrawals in retirement. If you take funds out early, you could face penalties, and contributions to a Roth IRA may only be made from earned income.

A single person may add funds to a Roth IRA if they earn up to $146,000.  After that, the amount you may contribute is phased out until your income reaches $161,000, after which you cannot add funds directly to the account. For married couples, the income threshold is less than $230,000.

Roth IRA Tax Benefits

Funds are taxed before they go into a Roth IRA account, so the advantage of the account is the tax-free distributions of contributions and earnings. In addition to the five-year rule, you will need to meet these eligibility requirements:

• The original owner dies, and you inherit the Roth IRA.
• The owner is at least 59 ½ years old.
• The owner meets disability requirements.
• The distribution is used for first-time homeowner expenses of up to $10,000.

Age Considerations

If you’re in your 70s and still working, there are some facts to consider before opening a Roth IRA. The tax-free growth of Roth IRAs works best as the holding period increases. The upfront tax costs may be very high if you are in your highest income level and a higher tax bracket. This makes a Roth IRA more advantageous for younger contributors. However, if you work part time, your lower taxable income might make the Roth IRA an excellent way to save.

Passing Funds to Heirs

With traditional IRAs or 401(k)s, Required Minimum Distributions (RMDs) start at a certain age, usually after celebrating your 73^rd birthday. However, there are no RMDs for Roth IRAs, and the funds remaining in the account after you die could be passed on tax-free. Beneficiaries may inherit the Roth IRA while allowing it to grow tax-deferred for up to 10 years, then take a full withdrawal without paying taxes.

Opening a Roth IRA later in life should be coordinated with your overall retirement and estate plan to be sure it works in concert with your overall estate plan. When reviewing your estate plan, it’s something to discuss with your estate planning attorney.

Reference: U.S. News & World Report (Dec. 29, 2023) “Are You Too Old to Benefit From a Roth IRA?”