Saving money in an individual retirement account can allow investors to build wealth for their golden years while paying lower taxes. A Roth IRA offers the benefit of tax-free withdrawals. As of 2012, the contribution limit for a Roth is $1,000 higher for people age 50 and over than it is for younger investors.
If you are 50 or older, you can contribute up to $6,000 a year to a Roth IRA, as of 2012, while people under age 50 can only contribute $5,000. The extra $1,000 contribution available to older investors is known as a "catch-up" contribution. Traditional IRAs have the same contribution limits.
Roth IRA contributions are not tax-deductible, regardless of your age and income level, but you generally don't have to pay taxes on withdrawals. Contributions to a traditional IRA are fully tax-deductible as long as you don't have access to retirement plan at work or make less than $58,000 a year. You must pay normal income tax on traditional IRA withdrawals.
Eligibility for a Roth IRA depends on your annual income and marital status, not your age. Single taxpayers with a modified adjusted gross income of less than $110,000 can contribute the maximum amount to a Roth IRA, as of 2012. Joint filers can contribute the maximum amount if their income is under $173,000. Your maximum contribution is reduced if your income is more than $109,999 but less than $125,000 as a single taxpayer, or more than $172,999 but less than $183,000 for joint filers. If your income exceeds those higher amounts, you can't contribute to a Roth IRA.
If you open an IRA after age 50, you may not be able to access all of your account's funds tax-free when you retire. You can take your contributions out of a Roth IRA tax-free at any time, but you can't withdraw investment gains tax-free unless you meet certain requirements. Tax-free withdrawals of investment gains come with two basic requirements. First, you must withdraw the funds after the five-year period that begins the year you open the account. Second, you generally have to be over age 59 1/2. The age requirement does not apply if you are disabled.