The tax benefits of qualified retirement plans, like IRAs and 401(k) plans, make them attractive options for saving money, even after you’ve retired. However, many retirement plans have provisions that change as you get older. In some cases, you’re allowed to contribute extra as you get closer to retirement. But most plans cut off your contributions after a certain age or after you’ve retired.
You’re only eligible to contribute to a traditional IRA if you will be younger than 70 ½ years old at the end of the calendar year. For example, if you will turn 70 ½ years old in December 2018, you can’t contribute to a traditional IRA for the 2018 tax year, even if you made the contribution prior to turning 70 ½ years old. However, if you’re 50 or older, you can contribute more money to your traditional IRA. In 2018, the contribution limit is $5,500 if you’re younger than 50, but $6,500 if you’re 50 or older.
Roth IRAs are also subject to the same contribution limits as traditional IRAs – every dollar contributed to a traditional IRA reduces how much you can contribute to a Roth IRA. But unlike traditional IRAs, there is no age limit for contributing to a Roth IRA. As long as you have taxable compensation, generally income from working, and your modified adjusted gross income doesn’t exceed the limits for your filing status, you can contribute to a Roth IRA.
Both employers and employees can make contributions to 401(k) plans for retirement savings. Each year that you’re employed, you’re allowed to contribute to the 401(k) plan and your employer can make contributions on your behalf, regardless of your age. However, if you are age 50 or older, the limits are higher. For 2018, if you’re younger than 50, you can’t contribute more than $18,500. But, if you’re 50 or older, you can contribute up to $24,500.
The IRS requires that employees must start receiving required minimum distributions from the 401(k) plan in the later of the year the employee turns 70 ½ years old or the year the employee retirees. However, some plans require that employees start taking required minimum distributions in the year the employee turns 70 ½, even if the employee is still working. In addition, if you owe 5 percent or more of the company that maintains the plan, you must start taking required distributions in the year you turn 70 ½ regardless of your age.
Employers with 100 or fewer employees are eligible to set up a savings incentive match plan for employees, either as a SIMPLE IRA or a SIMPLE 401(k), to make retirement contributions on behalf of their employees. The maximum employee contribution to a SIMPLE IRA or 401(k) is $12,500 as of 2018. But, if you’re 50 or older, the contribution increases by $3,000 to $15,500. These plans require participants to start taking required minimum distributions beginning in the year the employee turns 70 ½ years old, though you can wait until April 1 of the following year to take your first RMD. All future RMDs, however, must be taken prior to the end of each calendar year. However, the employer must still make contributions for employees who are eligible to receive employer contributions.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."