“My client is 80 and still working. She wants to put some money aside for when she might retire; however, she doesn’t have access to a workplace retirement plan. Is an IRA an option?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with an advisor in New York is representative of a common question related to making traditional IRA contributions.

Highlights of Discussion

More power to your client! You bet; an IRA is a great option. Of course, the most prudent course of action is to encourage your client to discuss her contribution options with her tax advisor.

Provided your client has the right amount of earned income to support it, she could contribute to a Roth IRA or—because of a key law change—she could contribute to a traditional IRA. She could even do a combination of Roth and traditional IRA contributions as long as she doesn’t exceed the maximum contribution of $7,000 for a person > age 50 between the two accounts. And, because the IRS has granted a special delay to the usual April 15^th tax filing deadline,[1] she still could make a 2020 IRA contribution (Roth or traditional) up until May 17, 2021!

Prior to 2020, once a person reached age 70 ½, he or she could not contribute to a traditional IRA any longer. That rule changed for 2020 and later years as a result of the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act) (see TITLE I, section 107 of the Further Consolidated Appropriations Act of 2020). The SECURE Act removed the age restriction for eligibility to make a traditional IRA contribution.  Roth IRA contributions have never had a maximum age limit, but they are subject to a maximum earnings limit. Consequently, for 2020 and beyond, the only requirement to be able to make a traditional or Roth IRA relates to having modified adjust gross income (MAGI) for the year—enough to make either a traditional or Roth IRA contribution, but not too much in the case of a Roth IRA contribution.

As to the question of deductibility, since your client does not participate in a workplace retirement plan—any traditional IRA contribution she may choose to make would be tax deductible, potentially. Active participation in a retirement plan can affect whether a traditional IRA contribution is tax deductible.  For details, please see a prior case: Active Participation May Affect IRA Deductibility

Conclusion

Recognizing that more people are working passed their 70s and may want to continue to save for retirement, the Administration saw fit to do away with the age limit for making traditional IRA contributions, effective for 2020 and beyond.

[1] Tax Day for individuals extended to May 17