Key Takeaways
- IRAs can be funded with pre-tax dollars (traditional) and after-tax-dollars (Roth).
- Tax deductibility of traditional IRAs is determined by income and access to an employer plan.
- IRA maximum contributions (regular and catch-up) are adjusted annually for inflation.
- Required minimum distributions (RMDs) from traditional IRAs must begin at age 73 or 75.
- RMD withdrawals are added to other income sources and taxed as ordinary income.
- RMDs from multiple traditional IRAs can be aggregated for withdrawal purposes.
- Qualified charitable distributions (QCDs) can help mitigate the tax bite caused by RMDs.
Individual retirement accounts (IRAs) have existed for over 50 years. Established as part of the 1974 Employee Retirement Income Security Act for workers without employer pensions, access was expanded to all workers in 1982 with an initial maximum annual contribution of $2,000. Baby Boomers (age 62-80 in 2026) were guinea pigs for IRAs and many saved diligently for decades.
Fast forward to today. According to the Investment Company Institute, 44% of U.S. households owned an IRA in 2024, with many IRAs funded by rollovers from other tax-deferred accounts. Early account holders who maxed out savings as contribution limits increased over the years could easily have over $1 million.
This article begins with a description of IRA basics including characteristics, tax rules, and contribution limits. It then pivots to discuss topics of interest to older adults including later life investments, required minimum distributions (RMDs), and qualified charitable distributions (QCDs).
IRA Characteristics
Traditional IRAs
Tax-deferred traditional IRAs are funded with pre-tax dollars (income not yet taxed) and contributions may be tax-deductible, depending on income (see below). IRA earnings are free from taxation until withdrawals are made, typically in retirement.
Roth IRAs
Roth IRAs are funded with after-tax dollars (money already taxed). While there is no up-front tax deduction, withdrawals are tax-exempt if a Roth account is open at least five years and the account owner has reached age 59 ½. Income limits apply.
Back Door Roth IRAs
As taxpayers get older, their income often increases. A back door Roth IRA allows higher-income taxpayers who exceed income limits ($153,000–$168,000 phase out for singles and $242,000–$252,000 for couples filing jointly in 2026) for direct Roth IRA contributions to still obtain Roth tax benefits.
The process involves contributing to a nondeductible Traditional IRA and then converting those funds to a Roth IRA shortly afterward. IRS form 8606 is used to report the transaction.
Spousal IRAs
A spousal IRA lets a working spouse contribute to an IRA for a nonworking spouse up to the same maximum limits as the worker (assuming the worker has sufficient earned income to cover contributions for both spouses). It can help older married couples reduce their adjusted gross income (AGI).
IRA Tax Rules
Contribution Limits
Individuals can contribute up to $7,500 in 2026 to a traditional IRA, Roth IRA, or combination of both. In addition, there is an additional $1,100 catch-up contribution for workers age 50+ ($8,600 total). There is no upper age limit for IRA contributions provided you have earned income.
Tax Deductibility
Household income and coverage by an employer retirement plan like a 401(k) determine tax-deductibility of traditional IRA contributions. In 2026, phaseout income ranges for covered workers are $81,000–$91,000 for singles and $129,000–$149,000 for married couples filing jointly. The phaseout range is $242,000–$252,000 if IRA account owners are not covered by an employer plan but their spouse is.
Required Minimum Distributions
RMDs are the minimum amount that must be withdrawn each year from tax-deferred traditional IRAs. RMDs must begin at age 73 (those born from 1951 to 1959) and, starting in 2033, age 75 (those born in 1960 and later). They are calculated using IRS life expectancy tables and prior year-ending balances.
The first RMD can generally be delayed until April 1 of the year following the year when someone reaches the required age, but doing so means two taxable distributions that year.
Roth Conversions
With a Roth conversion, IRA owners transfer money from a traditional IRA to a Roth IRA. The converted amount is taxable in the year of conversion, but future earnings and withdrawals are tax-free if rules are met. Older adults may convert to Roth IRAs to reduce future RMDs and leave tax-free assets to heirs.
Good times to convert are when the tax cost of converting is relatively low and the long-term benefits are higher. For example, during low-income years, before RMDs begin, and during market downturns when account values are reduced and the taxable conversion amount is smaller.
IRA Growth
IRAs can grow significantly over time. For example, consider a 25 year old who contributes the 2026 maximum of $7,500 to a Roth IRA and makes steady deposits for 42 years (age 67). According to the Bankrate Roth IRA Calculator, with an estimated 7% rate of return, this saver would have almost $2 million. Likewise, long time “maxed out” Baby Boomer savers have accumulated significant sums.
IRA Investments in Later Life
As investors age, many gradually shift IRA investments toward more conservative assets such as cash equivalents, bonds, and balanced funds. Others with generous pensions and Social Security to fund monthly living expenses may remain “stock heavy.” Other key factors are spending needs and investment risk tolerance. Stocks help offset inflation and stretch savings over longer life expectancies.
IRA Rollovers
A rollover is the transfer of retirement savings from one tax-advantaged account to another. Example: from an employer plan such as a 401(k) into an IRA. The money keeps its tax-deferred status if the rollover follows IRS rules.
Older adults may roll money from an employer plan to an IRA upon retirement for more investment choices and control. If still working (70s and beyond), they may also roll IRA funds to an employer plan (if the plan allows it) to delay RMDs.
Financial Gap Years
Financial gap years are the time between age 59.5 (when early withdrawal penalties on tax-deferred accounts end) and the start of RMDs. Many people are in a lower marginal tax bracket during their gap years (especially after leaving a primary career) than they will be later when RMD withdrawals must begin. If so, gap years provide an opportunity for proactive tax planning (e.g., Roth conversions and Social Security delayed claiming).
IRA Consolidation
Multiple IRAs are not uncommon and many older adults elect to consolidate them into a single IRA. The simplest method is a trustee-to-trustee transfer between financial institutions. Benefits include fewer account management fees, less maintenance (e.g., account logins, tax statements, e-mails), and greater ease in calculating and withdrawing RMDs and administering a deceased person’s estate.
RMD Aggregation for IRAs
Tax law allows savers with multiple traditional IRAs to take the RMD distribution due for all IRA accounts from only one IRA account or a portion from any combination of different accounts. Example: with three IRAs, you determine the RMD for each account using IRS life expectancy tables and prior year-ending balances and combine the RMDs. RMD aggregation is often done for portfolio rebalancing purposes.
RMD Tax impacts
There is no capital gains tax rate on RMDs taken from traditional IRAs. Instead, RMD withdrawals are taxed as ordinary income. They are added to an account owners’ other income and taxed at the marginal tax rate for their tax filing status (e.g., single, married filing jointly). A concern of many older adults is RMDs pushing them into a higher tax bracket. In addition, tax withholding must account for RMD income.
Qualified Charitable Distributions
A qualified charitable distribution (QCD) is a direct transfer of money from a traditional IRA to a qualified charity. Persons aged 70½+ can make QCDs before and after the start of their RMDs. Before RMD age, QCDs can reduce or eliminate an IRA balance. After RMD age, QCDs count as a RMD withdrawal for the year the donation is made and removes the donated amount from taxable income calculations.
IRA Beneficiaries
Beneficiaries are named by IRA owners to inherit their account. Traditional IRA beneficiaries pay ordinary income tax on withdrawals, while Roth IRA beneficiaries usually take tax-free distributions if the account has met the five-year holding requirement. Non-spouse beneficiaries must typically withdraw all funds within 10 years while surviving spouses may treat their deceased spouse’s IRA as their own, thereby allowing them to delay distributions and take RMDs based on their own life expectancy.
Final Thoughts
Many people hold money in IRAs for decades. In later life, IRAs become an important tool for retirement income and tax planning. Older adults can use strategies like rollovers, Roth conversions, spousal IRAs, and QCDs to manage taxes, support heirs, and contribute to charities. Beneficiary designations should be reviewed regularly to ensure IRA assets pass as intended.
