Prior to a repeal under the SECURE Act, an individual was not permitted to contribute to a traditional IRA after age 70½. Now, however, that restriction has been lifted, and individuals who are still working and receiving earned income can continue saving for retirement, regardless of age.
With Americans living longer and often needing to work into later years, the change is welcome, since it allows individuals to continue retirement savings. A key benefit, of course, of contributing to a traditional IRA is that such designations are tax-deductible, meaning they could reduce modified adjusted gross income for that current year.
The change aligns the traditional IRA more closely with the Roth IRA, which allows anyone to contribute regardless of age, as long as the individual has earned income below specified limitations.
The repeal also has an ancillary impact on rules surrounding Qualified Charitable Distributions, which can be ordered to be paid directly from an IRA to a qualified charity by an individual who is at least age 70½. The IRA holder may exclude the amount of the QCD from taxable income, up to a maximum of $100,000 per year.
The SECURE Act didn’t change the QCD rules, but with the repealed age restrictions on IRA contributions, an individual is now able to contribute to an IRA and take a QCD in the same year. In this event, the IRA contribution will reduce the QCD exclusion by the amount contributed.
Interested in learning more about the SECURE Act? Download the SECURE Act eBook from the Schneider Downs Retirement Solutions team for a full overview of provisions and highlights at www.schneiderdowns.com/secure-act-ebook.
Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.