Can an IRA Still Work for Me at Age 60 or Older in 2024?

May 18th, 2023

If you’re age 60 or older and are still working, you may be asking yourself whether or not it still makes sense to contribute to an IRA. Find out here.

Can an IRA Still Work for Me at Age 60 or Older in 2024?

Tax Consequences of an IRA Account

The two most popular types of IRAs are traditional and Roth accounts. Both have certain tax advantages that you must carefully consider with respect to your current situation and your expected tax situation in retirement.

Traditional IRA contributions are taken pre-tax and are not counted as taxable income each year. Once placed into your account, contributions grow tax-deferred and are taxed as ordinary income when you withdraw money from the account.

Roth IRA contributions are made after tax, and there is no deduction available when you file your taxes each year. However, growth realized while your money is in your account, as well as withdrawals, are tax-free.

Tax strategy is perhaps the most important consideration when choosing which type of IRA account to put your retirement savings in. The benefits of a traditional IRA currently are the annual tax-reducing benefits on earned income.

The logic behind choosing a Roth IRA is―as many financial and economic professionals believe―that income tax rates will likely continue to climb in the future. Having access to a retirement account that is generally not taxable, and, therefore won’t bump you into a higher tax bracket, is a huge benefit.

Age Factors to Consider for Distributions

The age at which you plan to take distributions from your IRA account should be an important consideration in how you decide to invest your money.

For example, with both types of IRA account you can start taking distributions at age 59½ without incurring a 10-percent penalty. However, that’s where the similarities stop, because a traditional account mandates that you take a required minimum distribution (RMD)¹ at age 73. The amount you take is also subject to current income-tax brackets, depending on your filing status, income for the year, and other factors.

A Roth account is exempt from RMDs, and withdrawals can be made penalty-free after five years and upon reaching age 59½. The withdrawals also generally do not add to your tax burden each year.

Know your contribution limits

Contribution limits to retirement accounts are fixed by the federal government. If you are single and earn less than $138,000 per year, or married filing jointly and earning less than $218,000, you can contribute up to $6,500 annually to either type of IRA account.

The good thing is, if you are age 50 or over, the IRS allows catch-up contributions of an additional $1,000 annually, making your total annual maximum contribution $7,500.

Traditional IRAs for ages 60+

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals before age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

Roth IRAs for ages 60+

Taxpayers who are not able to deduct their contributions to a traditional IRA but who are still below the Roth IRA income limits may instead arrange a "back door" Roth IRA contribution. You can enjoy tax-free growth by making a nondeductible contribution to one's traditional IRA and immediately converting the contribution to a Roth account.

Key considerations about the backdoor Roth IRA strategy:

Only one Roth IRA conversion is permitted per year.
You will still pay taxes on the funds in the year they convert, but the end result will be a Roth IRA account.
Funds deposited to a Roth in this manner count as converted funds rather than contributions, meaning that for five years, you will be penalized if you make withdrawals before age 59½.
Roth IRA conversions are not subject to the current contribution limits of $6,000/year ($7,000 if you are 50 or older).

The Roth IRA offers tax deferral on any earnings in the account. Withdrawals from the account may be tax-free as long as they are considered qualified. Limitations and restrictions may apply. Withdrawals before age 59 ½ or before the account is opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Future tax laws can change at any time and may impact the benefits of Roth IRAs. Their tax treatment may change.

Decide Between a Traditional or a Roth IRA

Even if you contribute to a 401(k) at work, individual retirement accounts (IRAs) offer some distinct advantages over an employer-sponsored 401(k). Not only are these accounts typically portable, allowing you to move them to the retirement custodian of your choice, but they may also serve as a rollover account for your old 401(k)s if you leave your employer.

Like a 401(k), a traditional IRA allows you to deduct your contributions (if you do not exceed certain income limits) from your taxable income, reducing your overall tax bill. When you withdraw IRA funds in retirement, you typically pay taxes on them. A Roth IRA, on the other hand, allows you to make post-tax contributions and then withdraw them tax-free in retirement.

Your IRA strategy can shift over time

There is absolutely no one-size-fits-all strategy for IRA contributions. Despite this, you may want to keep a few rules of thumb when evaluating their investment goals or deciding whether to contribute to a traditional IRA, a Roth IRA, or both.

Easier access to your money

Unlike other types of investment accounts, such as certificates of deposit (CDs), money market accounts, bonds, and others that tie your money up for periods of a year or longer, an IRA account is generally much easier to access and withdraw from once your reach age 59½.

Another advantage of an IRA, as far as having access to your money, is that under certain circumstances, the IRS will allow distributions penalty-free if you qualify². Certain financial accounts, such as CDs, typically do not allow for early withdrawal before the investment reaches its maturity date.

Conclusion

Saving for your retirement is almost always a good idea, regardless of whether it’s in a 401(k) or another type of growth account. The main point is to save as much as you can financially shoulder. However, an IRA account―especially at age 60 or older―can be a fairly risk-averse and tax-friendly way to save for your golden years.

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