Roth individual retirement accounts offer after-tax savings for retirement. If you are over 50 years old, you may wonder how your age affects your ability to contribute to a Roth IRA, and if your maximum contribution changes or if you cannot contribute after a certain age. Knowing the rules helps you better plan your retirement.
Higher Contribution Limits
The Internal Revenue Service sets an annual contribution limit for Roth IRAs each year. The IRS supplements this contribution limit with a catch-up contribution limit for people age 50 and older, however. For example, as of 2011, the annual contribution limit equals $5,000. The IRS recognized an additional $1,000 catch-up limit for people 50 and older, making the total contribution limit $6,000.
Lack of Taxable Compensation
Those over age 50, who have retired and are living off investment income or retirement pension plans and no longer work, have only unearned income. In order to make a Roth IRA contribution, you must have taxable compensation equal to, or greater than, your contribution. For example, if you have $500 of taxable compensation, you would only be able to put $500 in a Roth IRA. If you have no earned income, you cannot contribute.
Still Must Meet MAGI Limits
In addition, you must meet modified adjusted gross income limits before you can contribute to a Roth IRA, even if you are over 50 years old. The IRS sets a phaseout range for each filing status and adjusts it for inflation each year. Falling into the phaseout range reduces your maximum contribution below the total of your contribution limit plus your catch-up limit. If your modified adjusted gross income exceeds your filing status limit, you cannot contribute to your Roth IRA.
Unlike other IRA types, the IRS does not restrict your ability to contribute to your Roth IRA after a certain age. No matter how old, you can continue to make contributions of earned income. In addition, you are never required to take money out of a Roth IRA. You can leave the money in your Roth IRA until your death, taking advantage of the tax-sheltered status longer than you can with a traditional IRA. This also allows you to leave more tax-free money to your beneficiaries.