Age has a funny way of sneaking up on us. It seems the older we get, the faster it goes. In some cases it may have snuck up on you before you have really saved for retirement.
You may find yourself asking should I open an IRA at age 60? If you plan on continuing to work and need retirement savings, the answer is “probably, yes.”.
I know, how come the answer is never just a direct yes or no? But to help clarify, I will discuss a few things below that might help.
You may be wondering if it is a good idea to save for retirement after 60, in general. After all, you’re nearly at retirement age by then! Well, I will touch on that along with whether a Roth IRA account is a good choice. I will also give you some things to consider when opening an IRA. Finally, I will let you know how much you can contribute to an Individual Retirement Account.
Table of Contents
Is It Too Late To Save For Retirement At Age 60?
If older investors can live on less money than what they have coming in, then no, it is not too late to save at, or after, 60 years of age.
Granted, you may wish you started much sooner. You’ve probably already heard more than you’ve wanted about the big difference saving early makes where retirement accounts are concerned, as well as the argument for the power of regular contributions and compounding investment earnings. But, sometimes retirement planning isn’t possible – at least on the scale you would have wished – and it is time to look forward.
The great thing is that, whether you are looking to retire or are already retired, saving now can still help you in your future retirement years. And, any time is always a good time to save, in my opinion.
Simply saving is one thing, but saving in an IRA is a bit different. There are a couple of requirements in order to save in an IRA.
According to the IRS website, you must have taxable income in order to contribute to an IRA.
However, this can be earned income by a spouse if you file a joint tax return. In addition, you cannot contribute more to your IRA than the total amount of your gross income in each tax year.
That means if you are making a bus load of money under the table, an IRA may not be for you (I don’t even want to think about the legal issues of you making a bus load of money tax free).
And now, a little hard dose of reality – if you are 60 and just now starting to save, you may have a rough road ahead.
If you haven’t saved much money up to now, you’re going to want to put the maximum amount you can into savings and investment products. If you have the option, contribute to your 401(k) retirement savings plan at least up to the amount of your employer’s match. That alone is a 100% return on your money.
If you are in good health, consider getting an additional part time job to help grow that amount. Also, you will want to look into working into your late 60s or even to 70 to maximize your social security benefits.
I know, you just mumbled a few four letter words. I get it – cutting down your standard of living will be hard.
So let me ask you this… Can you live on about $1,500 per month? That is about the amount of the average Social Security check. But, the longer you can hold off claiming Social Security, the higher your check will be.
If you do not cut back now, you may have to make drastic lifestyle cuts later. So even though you may not be able to save enough to keep your same standard of living, you may be able to improve it.
Does It Make Sense To Open A Roth IRA At Age 60?
There are two main types of IRAs that are not set up by an employer or small business. They are a Traditional and Roth IRA. Both have different tax advantages.
Traditional IRA contributions may allow you to take a tax deduction when you do your taxes each year. Reducing your taxes is always good, right?
The government will not let you off that easily, though. When you do finally retire and start withdrawing that money, you will have to pay income taxes on your investment income. That’s right – any earnings and the money you have contributed to a traditional IRA will be taxed.
But, wait – depending on your current income, you may be in a lower tax bracket in retirement and may pay less taxes than you would now, though. So with a traditional IRA, you get a tax break now, and possibly pay taxes at a lower tax rate later.
That sounds like a win-win doesn’t it?
Well, basically that tax deduction is one of the main differences between the Traditional and Roth IRA. The money you contribute to a Roth IRA is money that you have already paid taxes on.
However, the good news is that when you withdraw that money, it is tax free. All of your Roth IRA assets are tax-free withdrawals, including your investment returns (ahhhh, sitting on the beach, drinking pina coladas, and knowing your income is tax free…)
Here is the catch. If you wind up in a low income bracket, you might pay little or no taxes anyway.
So after all of that, you are now back to wondering if it makes sense to open a Roth IRA at age 60? That is something you will have to decide. Which IRA route you choose may come down to what helps you sleep at night.
If you expect to have a low household income in retirement, it would normally not make sense to open a Roth IRA. The big picture means you would pay taxes based on your current income instead of your income in retirement.
However, if you would feel better knowing that all of your money is completely tax free in retirement, you might want to consider a Roth IRA.
If you go with a Traditional IRA, you may get a tax deduction now and pay taxes based on your retirement income. This could lead to paying much lower or no taxes in retirement.
*TIP: My expertise is as a debt coach, so I recommend you consult a financial advisor who can help you make the best retirement and investment decisions, based on your individual situation.
Opening an IRA After Age 60 (Things To Consider)
Now that I have gotten you all excited about opening an IRA, there are some things you need to consider.
Do you remember that tax deduction I mentioned? As with any government program, there are exceptions. They put income restrictions on that deduction.
Eligibility depends on if you or your spouse have a retirement plan at work, your filing status, and income. They specify if you can deduct all, some, or none of your contribution.
The good news is that if neither you or your spouse have a retirement plan at work, you can take the full deduction. If either of you do have a plan at work, check with the IRS to see what they allow.
The sort of good news is that even if you cannot take the deduction, you can still make the contribution. It just means that you may get a partial, or no, deduction and still have to pay taxes in retirement based on your income.
Something else to consider is that there are income limits for contributing to an IRA. Based on your income, you may only be allowed to make a partial, or no, contribution to a Roth IRA. But, chances are that, unless you are married filing separately, you can make up to $129,000 before they start cutting you off.
Married filing jointly has a limit of $204,000. But as usual, check with the IRS to see where you fall in their restrictions.
I already mentioned that you cannot contribute more than your claimed income. However, regardless how healthy you are or how long you plan to work, you cannot contribute to a Traditional IRA beyond the age limit of 70½.
Along the same lines, you will be required to start taking money out of your Traditional IRA when you are 72. This is called your Required Minimum Distribution.
The amount of your required minimum distributions are specific to you. They are calculated by dividing your prior year-end account balance by a life expectancy factor in the IRS Uniform Lifetime Table.
The Roth IRA does not have any age limits for contributions or for withdrawals.
There is one other thing you should know if you want to open a Roth IRA. You need to have the account for at least five years after the first contribution before making penalty free withdrawals.
How Much Can A 60 Year Old Put In An IRA?
Whew! You have made it through all of the boring stuff but want to know how much you can start putting in an IRA. Well, that is a good question.
In 2022, there is a total annual contribution limit of $7,000 if you are older than the age of 50. This amount includes the regular contribution limit and a catch up amount.
If you are lucky enough to have access to a plan through work (401(k), 403(b), 457, Thrift Savings Plan) a 60 year old can contribute a total of $27,000 annually to that plan.
Wrapping Things Up
So, there you have it. Should you open an IRA at the age of 60? Unless you already have a ton of money, the answer is probably “yes.” Even if you do have a ton of money it may not be a bad idea.
It is (almost) never too late to save for your retirement. The earlier you start the better, but now is the next best time. You may not get wealthy but you can improve your standard of living from just a Social Security check.
Your expected retirement income and comfort with paying taxes will determine if it makes sense for you to open a Roth IRA at the age of 60.
Your current status and income will determine if you can deduct Traditional IRA contributions. Your retirement income will then determine the amount of taxes you pay on your Traditional IRA.
Don’t forget, there is an age you will be required to stop contributing to a Traditional IRA and another age requiring distributions.
A Roth IRA has no age restrictions for contributing or distribution. Also, all distributions will be tax free.
There are numerous things to consider about opening an IRA after the age of 60. I only mentioned a few of them.
The IRs requires you to take Traditional IRA distributions at age 72. The amount is calculated by dividing your prior year-end account balance by a life expectancy factor from the IRS.
The Roth IRA does not have any age limits for contributions or for withdrawals. However, you need to have the account for at least five years before making withdrawals.
And finally I let you know you can contribute $7,000 to an IRA and $27,000 to a 401(k)
If retirement has snuck up on you and you want help with debt issues or general budgeting, check me out at MyOnlineDebtCoach.com.