Whether or not you can open an individual retirement account (IRA) depends on several factors. 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 cannot make contributions to traditional IRAs once you reach the age of 70½.
- 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.
However, if you are establishing a new traditional IRA into which you plan to make regular IRA participant contributions, you are allowed to do so provided you do not reach age 70½ in the year you make that first contribution. The limit also stretches to whether you can add to a traditional IRA that you already own.
Here’s an easy way to figure this out. For the year you want to contribute to a new or existing traditional IRA, if your 70th birthday occurs anytime from:
- January 1 to June 30: You will reach age 70½ by the end of the year. As a result, you are not allowed to make an IRA participant contribution to a traditional IRA for that tax year.
- July 1 to December 31: You will not reach age 70½ by the end of the year. Therefore, you are allowed to make an IRA participant contribution to a traditional IRA for that tax year.
For 2019 and 2020 the contribution limit for all IRAs combined is $6,000, although 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 year 2020 is $7,000 each if you're over 50 years old—$6,000 plus a $1,000 catch-up contribution. 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. He or she can help you determine if this alternative suits your financial profile.