Leveraging IRAs to save later in life has tax benefits and will often be preferable to investing in a taxable brokerage account for older adults with earned incomes, but those tax benefits will tend to be modest. Basically, raising the age requirement for traditional IRAs brings accounts in line with other types of key accounts, such as Gold IRA accounts. The contribution limits for traditional IRA contributions that you can deduct on your tax return are the strictest; Roth IRA contributions are allowed with a higher income limit. Jeffrey Levine, an expert in tax and financial planning, described traditional IRA contributions after the RMD era as something like a revolving door of IRA money, including Gold IRA accounts. Although earned income is required to make an IRA contribution, income limits apply to IRA contributions regardless of age.
But if you can make a contribution to the IRA, should you? Or would it be better if you saved in a taxable account? However, despite the fact that the Security Act raises the age limit for traditional IRA contributions, IRA contributions continue to have restrictions. When in doubt, IRA owners should consult with a competent tax advisor to determine if the income is eligible for an IRA contribution. The IRS restricts the amount that IRA owners can contribute to IRAs in a given year, subject to cost-of-living adjustments. Traditional IRA contributions later in life can also make sense if the person earns too much to contribute directly to a Roth IRA; in that case, the taxpayer can take advantage of the clandestine Roth IRA maneuver, fund the traditional IRA, and then convert it to Roth.
However, while Roth IRAs or corporate retirement plans tend to be better receptacles for additional contributions from older workers, a traditional IRA may be appropriate in a handful of situations. In addition, traditional IRA investments benefit even less from that tax-protected capitalization than contributions to Roth IRAs, since traditional IRAs are subject to RMDs that are ultimately subject to taxation. When filing federal income taxes together with their spouse, people who have little or no eligible compensation can make contributions to the traditional IRA or Roth IRA to their own IRAs based on their spouse's income. Working seniors, regardless of their age, have always been able to contribute to a Roth IRA if their income was within certain limits, but if they were over 70 and a half years old, they couldn't contribute to a traditional IRA.
Once you make a deductible contribution to an IRA, any QCDs you make are included in your income until the amount of the QCDs equals the cumulative total of all deductible IRA contributions made since the year you turned 70 and a half years old. However, a related provision, which received less attention, allows account owners to continue making contributions to traditional IRAs after age 72, as long as they have earned income.