Whether or not you can open an individual retirement account (IRA) depends on several factors and age is just one of them. Here’s a quick look at the main rules governing the two types of IRAs—traditional and Roth.
- There is no age restriction put on contributions to Roth IRAs.
- You can now make contributions to traditional IRAs beyond the previous age limit of 70½ years thanks to the SECURE Act.
- There is no age restriction on setting up a new traditional IRA into which you then roll over or transfer funds from another eligible retirement account.
Let’s start with age. For Roth IRAs, it’s simple: There is no age restriction. For traditional IRAs, there is no age restriction if you are establishing a new IRA to which you will transfer or roll over assets from another IRA or eligible retirement plan, such as a qualified plan or a 403(b) or 457(b) account.
Traditional IRA contributions are also no longer restricted by an age restriction thanks to the passage of the SECURE Act. Previously, individuals were only allowed to make contributions if they had not reached age 70½ in the year you make that first contribution.
Here’s an easy way to figure this out, if you are over 70½ you can now contribute to a traditional IRA beyond that age as long as you're working.
For 2019 and 2020, the contribution limit for all IRAs combined is $6,000, though for those 50 and older, an additional $1,000 catch-up contribution is allowed.
Additional IRA Rules
The maximum amount you are allowed to contribute to either a traditional or Roth IRA for tax year 2019 and tax year 2020 is $7,000 each if you're over 50 years old—$6,000 plus a $1,000 catch-up contribution each year. For both types of IRAs, you have to have earned income, or what the Internal Revenue Service (IRS) calls “taxable compensation,” to contribute. That includes wages and salaries, commissions, self-employment income, alimony, and separate maintenance and nontaxable combat pay.
What doesn’t count are earnings and profits from property, interest and dividend income, pension or annuity income, deferred compensation, income from certain partnerships, and “any amounts you exclude from income.”
If you earn less than $7,000, you can only contribute as much as you make. In the case of a Roth IRA, your tax filing status and a high income may also curtail your contribution. And in the case of a traditional IRA, if a retirement plan at work covers you or your spouse, you may not be allowed to deduct your contribution from your taxes. The IRS website spells out these rules in greater detail.
You have 15 months in which to make your participant contributions for any particular year—basically, from January 1 to April 15 of the following year—and the IRS allows you to put your money in a wide range of investments, including stocks, bonds, mutual funds, ETFs, and more.
The Bottom Line
If you are not eligible to make a participant contribution to a traditional IRA, talk to your tax professional about making a contribution to a Roth IRA instead. They can help you determine if this alternative suits your financial profile.