If you're still working, you can contribute the full amount of your salary deferral to a Roth 401 (k), regardless of your age. For starters, custodians holding IRAs aren't required to accept contributions from savers over 70 and a half years old, according to new guidance from the IRS. Those who do so must modify their IRA contracts. In addition, contributing to an IRA at this age can have unexpected planning implications, such as changing your charitable giving strategy.
In addition, Roth IRAs don't impose RMD, meaning you can leave your money in your plan indefinitely and let it grow. The Security Act complicates this strategy for people who want to continue saving on their IRA after 70 and a half years, but who also want to make those charitable distributions with their accounts. If you have an IRA in addition to your 401 (k), you'll need to apply for your RMD regardless of whether you're still working at the time. However, you may not be able to deduct all of your traditional IRA contributions if you or your spouse participate in another retirement plan at work.
The best way to avoid RMDs (and the taxes they generate) is to change your traditional 401 (k) to a Roth IRA. That's because older savers who save in an IRA and receive a tax deduction for doing so could find themselves accidentally paying taxes on those charitable distributions, according to recent guidance from the IRS. There are no joint IRAs, so one spouse can make a deductible contribution to their own account, while the other makes a charitable distribution, Slott said. That is, the Security Act now allows people over 70 and a half years old to make tax-deductible contributions to an IRA.
However, you can still contribute to a Roth IRA and make cumulative contributions to a Roth or traditional IRA, regardless of your age. RMDs must be deducted not only from 401 (k) plans, but also from other retirement plans, including different types of IRAs. In addition to the general contribution limit that applies to both Roth and traditional IRAs, your contribution to the Roth IRA may be limited depending on your reporting status and income. If you file a joint return, you may be able to contribute to an IRA even if you haven't had taxable compensation for as long as your spouse did.
If you want to save in your 70s, it would be best to avoid those tax-deductible IRA contributions altogether, Slott said. People who are committed to making those tax-deductible contributions to the IRA and want to continue donating to charities through charitable distributions can also contact their spouse.