The only reason to consider making an after-tax contribution to a traditional IRA is tax-deferred growth. If you had invested your non-deductible contribution in a taxable brokerage account, you would have to pay taxes on interest, dividends, and capital gains distributions annually, even if you don't sell any shares. Your ability to fund different types of IRAs is subject to restrictions based on your income, your tax-reporting status, and your eligibility to participate in an employer-sponsored retirement plan, even if no contribution has been made to the plan in a given tax year. Saving on an IRA can be profitable when you're trying to accumulate enough money for retirement.
There are tax benefits and your money has a chance to grow. Although earned income is required to make an IRA contribution, income limits apply to IRA contributions regardless of age. The contribution limits for traditional IRA contributions that you can deduct on your tax return are the strictest; Roth IRA contributions are allowed with a higher income limit. Anyone can make a traditional non-deductible contribution to the IRA, regardless of income or age.
Those contributions could then be converted to Roth for a “clandestine” Roth IRA. However, such a maneuver will entail tax costs in the (probable) scenario where a retiree has significant traditional IRA assets that have not yet been taxed. If your 401 (k) plan has limited investment options, consider opening a traditional or a Roth IRA and contributing to the annual maximum. You can automate your IRA contributions and have the money deposited into your IRA weekly, biweekly, or monthly, or according to the schedule that suits you best.
In addition, traditional IRA investments benefit even less from that tax-protected capitalization than contributions to Roth IRAs, since traditional IRAs are subject to RMDs, which are ultimately subject to taxation. Jeffrey Levine, an expert in tax and financial planning, described traditional IRA contributions after the RMD era as something like a revolving door of IRA money. Choose your IRA and get your contribution and invest as soon as possible to take advantage of the tax-free capitalization power of IRAs. And unlike a Roth IRA, deductible and non-deductible IRA contributions can be combined in the same account.
However, despite the fact that the Security Act raises the age limit for traditional IRA contributions, IRA contributions continue to have restrictions. Both the fact that Americans work longer than they used to, and the fact that the age requirement for making contributions to the traditional IRA was abolished, is a nod to the fact that Americans work longer than before. However, while Roth IRAs or corporate retirement plans tend to be better receptacles for additional contributions from older workers, a traditional IRA may be appropriate in a handful of situations. Roth IRAs have no age limits for contributions, and workers can also contribute to their company's retirement plans (such as 401 (k) plans) and delay the RMDs of those accounts, as long as they are still employed and are not the primary owners of the company.
The IRS recommends keeping your forms 1040 and 8606, as well as the Form 5498 you receive each year from the IRA depositary to document your contributions and distributions. Even if you start saving early and then stop saving after 10 years, you may still have more money than if you started later and contributed the same amount each year for many more years. However, the type of IRA that makes sense for you personally will depend on your tax situation and income, so there's something else to consider. .