Retirement Questions: What Is The Best Ira Contribution For My Age?

Determining the best IRA contribution for your age depends upon your age, financial position, alternative retirement plans, and income level.

Determining the best IRA contribution for your age depends upon a number of factors. The first is your overall financial position. Young people especially tend to have few liquid assets. Because having to go into debt or pay penalty taxes on early withdrawals from tax-advantaged retirement accounts to cover unexpected expenses is so detrimental to long-term investing, maintaining an emergency fund is essential. If you do not have 3 to 6 months of income saved, you are well advised to do that before making an IRA contribution.

Once you have an emergency fund, the next consideration is what retirement plans are available to you. If you have a 401(k) plan through your employer with an employer match, your best bet is to first contribute the maximum amount that is matched. The next best option is often a Roth IRA because withdrawals in retirement are tax-free. Because your income, or your and your spouse's income, cannot exceed specified limits, younger people often have an easier time qualifying for a Roth IRA. Married people filing separately do not qualify for Roth IRAs regardless of income level. Up to $10,000 lifetime can be withdrawn for the purchase of a first home, making Roth IRAs especially attractive to younger people. However, Roth IRAs also do not have an age limit on contributions, which makes them uniquely attractive for people over age 70 ½.

In the event you only qualify for a traditional IRA, it may be more convenient to contribute to a 401(k) instead if you are satisfied with the investment choices. The advantage of having your own IRA is that you have complete control over your investment choices. Of course, the best option is to contribute the maximum amount to all of the retirement plans you are eligible for to maximize your funds in retirement.



Although younger people often find it difficult to save for retirement, making the maximum contribution to their IRA and any other retirement plans they are eligible for is especially rewarding. Young people have many years ahead of them before retirement. The extended period allows their investments to compound and grow dramatically, even if they are relatively small. Waiting until you are older to contribute the maximum amount to your IRA will require you to contribute much more to result in the same amount of money for retirement.

Fortunately, Congress has recognized that many people procrastinate when it comes to saving for retirement. For those 50 years old and older, the maximum amount that can be contributed to an IRA is $500 more than it is for everyone else. The cap on 401(k) contributions is also increased for those who are at least 50 years old.

It is important to remember that you cannot contribute to any type of IRA, other than a Roth IRA, once you reach age 70 ½. In fact, you are required to take minimum distributions from your tax-deferred retirement accounts beginning at age 70 ½. Only Roth IRAs are exempted from this requirement.

In general, it is ideal to contribute the maximum allowable amount to your IRA regardless of your age to help ensure that you have adequate funds for retirement. Younger people, because of the amount of time they have to let their account grow, particularly benefit from contributing as much as they can to their IRAs. Older people needing to catch up are allowed to make larger contributions once they are 50. Those wishing to avoid required minimum distributions or who wish to contribute to their IRA after they are 70 ½ can only do so if they have a Roth IRA.

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