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IRAs and Your Age: What You Need to Know
An IRA may help you start saving for retirement no matter how young, or young at heart, you are.
Individual retirement accounts (IRAs) are a common type of retirement savings that you may be contemplating for yourself, or even for your child.
Wondering if you should open an IRA to start helping your child save for retirement? Or what other roles age plays with these accounts?
Let’s explore these important retirement savings questions.
This information is not tax or investment advice. You should consult with a tax advisor and/or a qualified investment professional for advice specific to your particular circumstances.
Key Takeaways
There is no minimum or maximum age for opening or contributing to an IRA, you just have to have taxable income.
Parents and guardians may open IRAs for their children to use in the future and may contribute to those accounts up to the child’s earned income.
You must be at least 59 ½ years old to withdraw from an IRA without penalty, unless the withdrawal qualifies for an exception.
IRA Minimum and Maximum Age Limits
There aren’t minimum or maximum age limits for opening a traditional and Roth IRA account. As long as you have taxable income, you’re free to open an account and make contributions up to the IRS’ contribution limits.1
A non-working spouse may also open a spousal IRA at any age, provided the working spouse’s income covers contributions.2
Similarly, an adult may open a custodial IRA for a minor. A custodial IRA is simply an IRA account that a custodian, typically a parent or guardian but could be any adult, opens on a minor’s behalf and manages until the child reaches adulthood, typically between 18 and 21.3
With a custodial IRA, adults may make contributions as long as the child is earning some amount of taxable income.4 The contributions can’t exceed the IRS’ limit, which is $7,000 in 2024, or the amount the child earned, whichever is less.5
Does Age Impact IRA Rollovers, Transfers, or Conversions?
Rollovers, transfers, and conversions don’t have age restrictions. Here’s a quick reminder of the difference between them.
Rollover: Moving money from a qualified retirement account, such as an employer-sponsored 401(k), to a traditional IRA.6
Transfer: Moving money from one IRA account to another of the same type.7
Conversion: Converting a traditional, SEP or SIMPLE, IRA into a Roth IRA.8 Note that conversions are taxable events and the amount converted is subject to income taxes the year the conversion occurs.9
While these transactions don’t have age restrictions, they may have tax implications for you. Consult with a tax advisor for more information.
Opening an IRA for Your Child
According to the IRS’ Statistics of Income Tax Stats for 2020 Table 8, approximately 11,000 taxpayers under the age of 15 had a Roth IRA account.10 If you’re interested in helping your child get a jumpstart on retirement saving starting young could help them achieve greater financial success in the future.
Here’s some insight on setting up your child’s IRA.
How to Open an IRA for Your Child
An adult may establish a custodial traditional IRA or a custodial Roth IRA for a child. Both types of retirement accounts could help build savings for them to use in the future. Remember that Roth IRAs require the account to be open for a minimum of five years before earnings may be withdrawn tax free.11
Sound easy? Well, the catch is that your darling child must earn some form of taxable income. The income source could be anything from acting and modeling to mowing lawns and babysitting.12˒13
These taxable earnings may be used to open and contribute to a custodial IRA for your child up to the limits, $7,000 in 2024 for example, or the amount your child earned, whichever is less.14
Additionally, adults may make gift contributions to a child’s IRA up to the contribution limit or the amount the child earned, whichever is less.15
For example, say your child earns $1,800 in 2024 from working part-time bagging groceries. They have the option to contribute up to $1,800 to their IRA. Additionally, family and friends could make gift contributions to the IRA, as long as the total contributions from all parties don’t exceed $1,800.16
Something to keep in mind with gift contributions is that they conform to gift tax rules, which have annual and lifetime limits.17
As always, it’s best to consult your financial advisor for setting up these accounts and your tax advisor for tax implications.
How the Funds Can Be Used
Opening a custodial IRA is a great way to kickstart your child’s retirement savings. However, there are two common, but lesser known uses for IRAs that may benefit your child sooner than age 59 ½.
One of these is the ability to use IRA funds for qualified education expenses in college, such as tuition, room and board, textbooks, and more, without incurring a 10% early distribution penalty.18 This may be a way to complement other college savings accounts, such as a 529.
Depending on the IRA type or length of time the account has been open, there may be income taxes to pay at withdrawal.19 Talk to your tax advisor regarding the impact on your specific scenario.
Second, IRA funds may be used towards a down payment on a home, up to $10,000, also without incurring that additional 10% early withdrawal penalty.20 Once again, your trusted tax expert is a great resource to consult with on this.
Other IRA Age-Related Rules
Even though age doesn’t impact opening an IRA, age does impact other important IRA processes.
Withdrawing for Retirement
Generally, people open IRAs to help them pay for retirement expenses. So it’s no surprise that the minimum age to withdraw funds without a penalty is 59 ½, unless you qualify for an early withdrawal exception.21
With traditional IRAs, once you hit age 72, you are required to take minimum distributions. If you don’t, you may be subject to a penalty.22
Roth IRAs don’t have a required minimum distribution, and you won’t have to pay a tax penalty if you don’t make withdrawals.
IRA Contribution Limits
The maximum amount you can contribute to your IRA each year is also age dependent.
Let’s take a look at the numbers from 2024 as an example (contribution limits may change each tax year).
If you’re under the age of 50, you’re allowed to contribute up to $7,000.
If you’re 50 or older, the IRS lets you make an additional “catch-up” contribution of $1,000, for a total of $8,000.23
Note that these limits apply to the total contributions between all of your IRA accounts. This means if you have a Roth IRA and a traditional IRA and are age 45 in 2024, you may contribute a total of $7,000 between the two accounts.
Final Thoughts
IRAs could help you be better prepared for expenses when you retire and you’re able to open one whenever you have taxable income to start contributing.
You may also choose to open a custodial IRA for your child to help jumpstart their retirement savings and teach them about financial responsibility early in life.
While there aren’t any age limits about when you’re able to open an IRA, there are age considerations when it comes to withdrawing funds, so be sure to keep these in mind.
IRAs may be a great retirement savings tool when you understand how they fit into your unique financial situation. That said, it’s always a good idea to consult with a financial and tax advisor about your specific situation to make sure you’re getting the most out of these accounts.