When Do IRAs Mature?

At what age does a Roth IRA mature? In reality, Individual retirement accounts (IRAs) don’t mature per se. That’s because they are not investment vehicles with a maturity date. Instead, they act as special accounts through which you can make different investments with varying maturity dates for retirement purposes.

IRAs are types of tax-advantaged accounts with rules established by the Internal Revenue Service (IRS). Traditional IRAs allow you to take a tax deduction for your contributions while allowing your investments to grow tax-free until you begin withdrawing your money. On the other hand, Roth IRAs are funded by your after-tax contributions, but they will enable you to make tax-free withdrawals during retirement.

The Maturity Dates of IRA Assets

Financial institutions like banks and brokerage firms administer IRAs. You can use them to invest in various assets whose maturity periods vary from a short time to infinity. And while you may be able to trade some assets, others are not exchangeable. So, long as the maturity period is not complete, you can only earn interest on your investments. But, you cannot sell or trade it to another entity.

For example, a Treasury bond can have a ​20 to 30 years​ maturity period, while a Treasury bill has a short-term maturation period of anywhere from a few days to 52 weeks. These securities are tradable, so you can buy or sell them before they attain the maturity period.

On the other hand, Certificates of Deposits (CDs)’s maturity periods vary depending on the terms you have been given at the time of deposit. Suppose you have bought a 5-year CD. That means your CD will mature in precisely 60 months, and you cannot publicly trade them during that time.

During those months, the CDs will continue to earn interest. And you won’t have to pay any taxes so long as the investments remain within the IRAs. After the maturation date, you get to decide whether to cash in or renew your CDs.

Other assets you can invest in within your IRA include stocks, precious metals, real estate, and stocks. Mutual funds in Roth IRA and their traditional counterparts are also allowed. But bear in mind that what you can invest in will depend on the kind of IRA you own.

Rules on IRA Contributions

To fund your purchases within an IRA, you must make contributions to it regularly. IRS rules allow you to make an annual contribution to your IRAs.

As of 2021, your maximum Roth and traditional IRA contributions cannot exceed​ $6,000 a year if you are younger than 50 and ​$7,000​ if you are 50 or older.

If you have a traditional IRA, you may be allowed to deduct your contribution and reduce your taxable income. Everything depends on the retirement plan at work covering you, and if so, how much you make. You do not get a deduction for Roth IRA contributions, but qualified distributions (withdrawals) are tax-free.

The Withdrawal Age for IRAs

You can open and begin contributing to a Roth IRA at any time. And you have until the year you turn 72 to contribute to a traditional IRA.

You don’t have to wait until all your assets mature to begin withdrawing money from your IRAs. The year you turn ​59 1/2​, you can start taking penalty-free distributions from your IRAs.

If you have a traditional IRA, you are required to take distributions from your account from the age of​ 72 or pay a ​50 percent​ penalty on the amount you should have withdrawn. Roth IRAs do not require you to make withdrawals.

IRA Withdrawal Penalties

You may have to pay a ​10 percent ​penalty on funds you withdraw before you turn ​59 ½​ unless you qualify for a penalty exception. If you have a traditional IRA, the entire amount of your distribution would be subject to a ​10 percent​ penalty plus income taxes.

If you have a Roth IRA, the ​10 percent​ applies to only withdrawals you take from earnings your account accrued, rather than the amount of your contributions. You do not have to pay income taxes on earnings if your account has been open for at least five years.

IRAs are intended to help people save for retirement. Therefore, the government imposes a tax penalty to make IRA owners think twice before raiding their accounts, even if they don’t have a maturity date.

However, if you need your IRA savings before you turn ​59 1/2​ and qualify for a penalty exception, you can begin making withdrawals. For example, if you use an IRA distribution to pay for your first home or college expenses, or if you become disabled, you can take penalty-free withdrawals.