A provision of the law also encourages older workers to continue saving for retirement and to get a tax benefit for doing so. That is, the Security Act now allows people over 70 and a half years old to make tax-deductible contributions to an IRA. Roth IRAs have no age limits for contributions, and workers can also contribute to their company's retirement plans (such as 401 (k) plans) and delay the RMDs of those accounts, as long as they are still employed and are not the primary owners of the company. 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. However, despite the fact that the Security Act raises the age limit for traditional IRA contributions, IRA contributions continue to have restrictions. 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. Although earned income is required to make an IRA contribution, income limits apply to IRA contributions regardless of age.
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. 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. 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.
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. Keep in mind that those who are 70 and a half years old or older and make contributions to a traditional IRA, a SIMPLE IRA, or an SEP IRA will continue to have to apply for an RMD, even if they are still working.