Are You Too Old to Open a Roth IRA? (2024)

The earlier you start a Roth IRA, the longer you have to save and take advantage of compound interest. Even when you're close to retirement or already in retirement, opening this special retirement savings vehicle can still make sense under some circ*mstances.

A Roth IRA is an individual retirement account (IRA) that allows certain distributions or withdrawals to be made on a tax-free basis, assuming specific conditions have been met. Unlike their traditional IRA counterparts, Roth IRAs are funded with after-tax dollars. This means they do not provide a tax deduction in the years you contribute money to them. However, qualified withdrawals are not taxed, because you have already paid taxes on the contributions.

There is no age limit to open a Roth IRA, but there are income and contribution limits that investors should be aware of before funding one. Let's look at the pros and cons.

Key Takeaways

  • You're never too old to fund a Roth IRA.
  • Opening a later-in-life Roth IRA means you don't have to worry about the early withdrawal penalty on earnings if you're 59½.
  • No matter when you open a Roth IRA, you have to wait five years to withdraw the earnings tax-free.
  • Roth IRAs are ideal if you want to avoid required minimum distributions and/or leave tax-free funds to your heirs.
  • Roth IRAs provide more flexibility than traditional IRAs, though traditional IRAs provide better immediate tax benefits.

When Roth IRAs Can Help Save for Retirement

Many people hit their peak earning years late in their careers. You might find you have extra money available to invest after the mortgage is paid off and the kids have finished college. You’ll want to make the most of that money.

You might simply realize your retirement savings calculations are coming up short. If that's the case, you aren't alone. Whether it's the cost of living, poor investment performance, or unexpected life situations, many people find they have saved far less than they need. In any case, you may want to do whatever you can to make up for it while you’re still earning income.

In some cases, you've changed jobs and the new employer doesn’t offer a retirement plan like a 401(k). In other cases, your employer does offer a 401(k) plan but doesn't offer to match funds or there's not a good selection of investment options. It's up to you to make money-management arrangements. Of course, if you have high-interest debt or don’t have an emergency fund, you should contribute any extra income to those priorities first.

If you’re squared away on both accounts, contributing to a Roth IRA in your late 50s, 60s, and beyond—assuming you qualify—can still make a lot of sense. One of the benefits of a Roth IRA is that you're never too old to fund it. There's no age limit on making contributions to a Roth IRA.

How Distributions from Roth IRAs Work

There is no requirement for when you must begin withdrawing money from a Roth IRA. That's in contrast to a traditional IRA, which mandates required minimum distributions (RMDs) beginning at age 73, in amounts based on your life expectancy and your account balance. If you don't want to be forced to withdraw money from a retirement account at this age, the Roth IRA is your best choice.

The IRS didn't require RMDs in 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES (Act). This was intended to give retirement accounts more time to recover from the stock market downturns and provide retirees the tax break of not being taxed on mandatory withdrawals. This was a temporary exemption.

Inherited IRAs and the SECURE Act

The distribution rules for a Roth IRA can also help you if you intend to leave your IRA to your heirs.

TheSetting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) requires all inherited IRAs to be disbursed within 10 years of the original owner's passing. If you have a significant amount of money in traditional IRAs, converting some of that money over into Roth money will not only help you avoid required minimum distributions (RMDs) but can help your heirs keep more of the money you are leaving to them by not requiring them to pay taxes on your traditional IRA they inherited during their potentially highest-earning years.

Income Requirements for Roth IRAs

Although less restrictive than other accounts, Roth IRAs aren't totally without limits. Regardless of your age, your income must be below a certain level for you to be eligible to contribute to a Roth. Also, contribution amounts to Roth IRAs can be limited or phased out. These limits depend on your tax filing status (i.e., single or married) and how much income you earn.

Income limits

In 2023, individuals with single tax-filing status cannot contribute to a Roth if their income exceeds $153,000. Contributions for singles begin to get phased out—or are limited—if they earn in the range of $138,000 to $153,000. In 2024, the limit is $161,000, and the phaseout range is $146,000 to $161,000.

For those who are married and file their taxes jointly, the Roth income phaseout range for 2023 is $218,000 to $228,000. This range increases to $230,000 to $240,000 in 2024.

This rule can be a drawback for people with high earnings. There’s a strategy for getting around it, known as a backdoor Roth IRA (see "What Is Converting to a Roth IRA?" below).

Earned Income

The key requirement for contributing to a Roth IRA at any age is having earned income. As long as you’re working—whether part-time or full-time, for yourself or someone else—you can contribute to a Roth. However, you can't contribute more than the amount you've earned that year.

Income from Social Security benefits, pensions, and investments count toward your modified adjusted gross income (MAGI), which affects your ability to qualify for a Roth. However, it doesn't count as earned income and can't be contributed to the Roth.

Are There Contribution Limits for Roth IRAs?

The annual contribution limit for Roth IRAs is $6,500 for 2023 and $7,000 in 2024. Individuals aged 50 and over can deposit an additional $1,000 as a catch-up contribution for a total of $7,500 in 2023 and $8,000 in 2024.

If you and your spouse are married filing jointly, and you both establish Roth IRAs, one spouse can contribute up to the maximum for both spouses. In other words, the spouse can contribute a maximum of $15,000 if both spouses are 50 or older for 2023, or $6,500 + $6,500 (each person's contribution limit) + $1,000 + $1,000 (each person's catch-up contribution). In 2024, that amount rises to a total of $16,000.

That's true even if only one spouse worked or if both spouses worked, but one spouse earned less than the contribution limit. The deadline to contribute for 2023 is April 15, 2024.

The Roth 5-Year Rule and Older Investors

When you turn 59½, you can withdraw earnings from your Roth IRA without getting slapped with the 10% early withdrawal penalty. But you can’t open your first IRA at age 58 and start withdrawing earnings penalty-free a year and a half later.

That's because Roth IRAs have what’s called a five-year rule. The money you put into a Roth has to stay there for five tax years if you want the earnings generated by your contributions to be tax-free when you withdraw them (and you do). However, this rule doesn’t apply to each contribution within an account. When you make your first Roth IRA contribution and five tax years go by, any earnings you withdraw will pass the five-year test.

Younger folks obviously don’t have to worry about the five-year rule. But if you open your first Roth IRA at age 63, try to wait until you're 68 or older to withdraw any earnings. You don't have to contribute to the account in each of those five years to pass the five-year test. The account itself just has to be five years old.

What Is Converting to a Roth IRA?

Another way to fund a Roth IRA—regardless of income or marital status—is by taking some or all of the money from a different type of eligible retirement account and converting it to a Roth. You can do this with accounts such as a traditional IRA or 401(k). This process entails transferring assets from the other account to a Roth IRA, either a new one or an existing one.

Now for the bad news: You'll owe income taxes on the amount you convert at your marginal tax rate for that year.

Does it make sense to take the tax hit on the conversion, even considering the tax-free withdrawals you’ll get later? It depends on what tax bracket you’re in now and what tax bracket you expect to be in when you take the withdrawals.

Let’s say, for example, that you happen to be out of work at the moment and your income for the year will be quite low. Your marginal tax rate could be just 12%. It might be a good time to convert because, after retirement, you might be in the 24% tax bracket after you add up all your sources of retirement income.

If you have a traditional IRA to which you’ve contributed post-tax dollars, all or part of those funds would definitely be good candidates for conversion. Even high earners who are unable to fund a Roth IRA directly are able to use this strategy, also known as a backdoor Roth IRA. However, you still may owe taxes on part of the conversion depending on your other retirement account holdings.

Roth IRAs and Social Security

There’s another benefit of contributing to a Roth IRA, no matter how late in the game it is. Roth withdrawals aren't considered income for the purposes of determining whether you’ll have to pay taxes on your Social Security benefits, unlike traditional IRA and 401(k) plan withdrawals. They also don’t count toward determining whether your income is high enough to charge you higher Medicare premiums.

Opening a Roth IRA can be a way to leverage your Social Security benefits, too. Let’s say you’re still working when you reach the minimum age to start getting those payments. Claiming Social Security as soon as possible could be a good strategy if it enables you to invest more.

The result can be greater earnings—greater even than waiting until you’re older to claim larger Social Security benefits and spending the money right away or having fewer years to invest it.

This isn’t a foolproof strategy, though. Its success depends on future investment returns and your time horizon. If you expect your retirement income to be tight, this strategy might be too risky for you.

You probably aren’t going to withdraw everything in your Roth at once. You may be able to take some stock market risk by investing money you won’t need until you’re 70 or older.

What Is the Five-Year Rule for Roth IRAs?

You must have had a Roth IRA opened for five years prior to taking distributions if you want your earnings to be tax-free and penalty-free. This is obviously a negative for anyone close to retirement age if you expect to begin withdrawals from this account in the near future.

What Are the Benefits of Opening a Roth IRA Later in Life?

If you do not expect to require the funds during your retirement, you can leave the money in your Roth IRA as an inheritance for your heirs. There are currently no required minimum distributions on Roth IRAs, so your money can continue to grow tax-free over a longer period of time.

What Are the Downsides to Opening a Roth IRA Later in Life?

An older investor won't have the same benefit that a younger person would have of an extended period of tax-free growth. You will also want to be sure to open your account more than five years in advance of when you expect to begin taking distributions, or you may be hit with unnecessary taxes.

The Bottom Line

As people work later in life and live longer, you might start questioning some of the conventional wisdom regarding retirement investing. One of those assumptions is that you're too old to open a Roth IRA if you're close to retirement age.

True, you won't have as much time until retirement to build a heftier tax-free account balance. That doesn't mean that a Roth IRA can't be the better choice for an older investor. Opening or converting to a Roth in your 50s or 60s can be a good choice when:

  • Your income is too high to contribute to a Roth through normal channels.
  • You want to avoid RMDs.
  • You want to leave tax-free money to your heirs.
Are You Too Old to Open a Roth IRA? (2024)

FAQs

Are You Too Old to Open a Roth IRA? ›

Are You Too Old for a Roth IRA? There is no maximum age limit to contribute to a Roth IRA, so you can add funds after creating the account if you meet the qualifications. Roth IRAs can provide significant tax benefits to young people.

What age is it too late to start a Roth IRA? ›

There is no age limit to open a Roth IRA, but there are income and contribution limits that investors should be aware of before funding one.

Can a 70 year old open a Roth IRA? ›

Investors of any age can open a traditional or Roth IRA.

What is the age cut off for Roth IRA? ›

For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs. For 2019, if you're 70 ½ or older, you can't make a regular contribution to a traditional IRA.

What is the oldest age to convert to a Roth IRA? ›

You can convert an IRA to a Roth no matter how old you are. But if the conversion boosts your income, it could have taxing consequences. You can't contribute to a traditional IRA, at any age, if you don't have earned income.

How much will a Roth IRA grow in 10 years? ›

Let's say you open a Roth IRA and contribute the maximum amount each year. If the base contribution limit remains at $7,000 per year, you'd amass over $100,000 (assuming a 8.77% annual growth rate) after 10 years. After 30 years, you would accumulate over $900,000.

How much will a Roth IRA grow in 20 years? ›

If you contribute 5,000 dollars per year to a Roth IRA and earn an average annual return of 10 percent, your account balance will be worth a figure in the region of 250,000 dollars after 20 years.

Does it make sense to contribute to an IRA after age 72? ›

The short answer is that additional traditional IRA contributions after RMD age may make sense in a handful of situations, but not many. Roth contributions will usually be the better bet.

What is a backdoor Roth IRA? ›

A backdoor Roth IRA is a conversion that allows high earners to open a Roth IRA despite IRS-imposed income limits. Basically, you put money you've already paid taxes on in a traditional IRA, then convert your contributed money into a Roth IRA, and you're done.

Does Social Security count as income for Roth IRA? ›

Non-taxable income from Social Security, pensions or investments doesn't count. But earnings from a part-time or consulting job, for instance, would be included. Check with your tax advisor to see if your income would affect your eligibility to contribute to a Roth IRA.

Do you pay taxes on Roth IRA? ›

Roth IRAs allow you to pay taxes on money going into your account and then all future withdrawals are tax-free. Roth IRA contributions aren't taxed because the contributions you make to them are usually made with after-tax money, and you can't deduct them.

Do I need to report Roth IRA on taxes? ›

Contributions to a Roth IRA aren't deductible (and you don't report the contributions on your tax return), but qualified distributions or distributions that are a return of contributions aren't subject to tax.

How do I convert my IRA to a Roth without paying taxes? ›

The point of a Roth IRA is that it's already taxed money that grows tax-free. So, to convert your traditional IRA to a Roth IRA you'll have to pay ordinary income taxes on your traditional IRA contributions in the year of the conversion before they “count” as Roth IRA funds.

Why is there a 5 year rule on Roth conversions? ›

You pay income taxes at the time of the conversion, meaning you can access those converted funds tax-free. But to avoid the 10% penalty, you generally must satisfy the five-year Roth IRA conversion rule. “For Roth conversions, the five-year-holding period is set for each individual conversion amount,” Edmisten says.

What is the 5 year rule under 59 1 2 Roth IRA? ›

Withdrawals from a Roth IRA you've had less than five years.

If you take a distribution of Roth IRA earnings before you reach age 59½ and before the account is five years old, the earnings may be subject to taxes and penalties.

Can I roll my 401k into a Roth IRA? ›

Roll over your 401(k) to a Roth IRA

You can roll Roth 401(k) contributions and earnings directly into a Roth IRA tax-free. Any additional contributions and earnings can grow tax-free. You are not required to take RMDs. You may have more investment choices than what was available in your former employer's 401(k).

Should a 45 year old open a Roth IRA? ›

What Is the Best Age to Open a Roth IRA? The earlier you start a Roth IRA, the better. There is no age limit for contributing funds, but there is an age limit for when you can start withdrawals.

Should a 30 year old have a Roth or traditional IRA? ›

A general guideline is that if you think your tax bracket will be higher when you retire than it is today, you may want to consider a Roth IRA—especially if you're younger and have yet to reach your peak earning years.

Is 25 too late to start Roth IRA? ›

The chart below shows hypothetically how much someone could have in their Roth IRA if they started maxing out their contributions at age 25. We calculated the results with an annual 7% return rate. Though the chart starts at age 25, it's never too early (or too late) to open a Roth IRA.

Can you contribute to a Roth IRA if you are retired and not working? ›

Can I contribute to a Roth IRA if I'm retired? Yes, you can, but only if you have taxable compensation. Roth IRAs were designed to help people save for retirement with the advantage of tax-free growth. So they're really most useful as a way to invest for growth in the years before you retire.

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