Should Older Workers Contribute to IRAs?

February 1, 2024
There are no age restrictions on IRA contributions. But does it make sense for older workers to make contributions as they near retirement? Here are three points to consider.

Older workers with earned income—including those who've already started taking required minimum distributions (RMDs) at age 73—can make contributions to tax-deferred traditional IRAs. But does it make sense to do so?

"Under the right circumstances, contributing to an IRA as an older worker can complement your tax strategy," said Hayden Adams, CPA, CFP®, director of tax and wealth management at the Schwab Center for Financial Research. For example, contributing could make sense if you want to:
 

1. Lower your taxable income

If you meet certain requirements, you may be able to deduct traditional IRA contributions, thereby reducing your taxable income for the year (up to the 2024 annual contribution limit of $8,000 for those ages 50 and older).

If you—and your spouse—are not offered a retirement plan by an employer, then you're eligible to deduct the full amount of your traditional IRA contributions, up to the contribution limit. However, if either of you participates in a workplace retirement plan, your deduction phases out depending on your filing status and income.

If your deductible contributions reduce your income to less than $25,000 ($32,000 if married), you can even avoid having your Social Security benefits taxed. (Admittedly, this is quite a low ceiling and may not be possible for retirees with significant savings.)
 

2. Benefit from a lower tax bracket in retirement

Making tax-deductible contributions to a traditional IRA now, if eligible, allows you to defer paying taxes until you're in a potentially lower tax bracket in retirement. This could be especially advantageous for workers who expect to retire in the next few years and want to beef up their savings before they leave the workforce.

3. Perform a backdoor Roth conversion

If your income exceeds Roth IRA contribution limits—$161,000 for individuals in 2024, $240,000 if married—you may be able to make after-tax contributions to a traditional IRA and then convert the funds to a Roth IRA. However, the IRS' pro rata rule requires that you include all your IRA assets—meaning those funded with pretax (deductible) contributions and those funded with after-tax (nondeductible) contributions—when calculating the conversion's taxes. "Once you're 59½ or older and have held the account for five years, you can withdraw contributions and earnings from a Roth totally tax-free," Hayden said. "Plus, such accounts aren't subject to RMDs, giving you more flexibility in your retirement cashflow and potentially limiting your overall tax liability."

"Older workers have a fair number of saving options now," Hayden continued, "so it's wise to work with a financial planner or tax professional to determine how best to achieve your retirement goals."