It's never too late to start saving, but it can be too late to use an IRA as your primary retirement-savings vehicle. IRAs have rules that prevent people above a certain age from fully taking advantage of these tax-favored retirement accounts. In addition, key life events can take away your eligibility to contribute to an IRA. Below, you'll learn about the situations in which it's just too late to start an IRA.
For traditional IRAs, age 70-1/2 is too late
IRAs were created to help people save for retirement, not to save during retirement. In considering when most Americans typically retire, lawmakers set an age limit of 70-1/2 on contributions to traditional IRAs. You cannot start a traditional IRA, or contribute to an existing traditional IRA, if you'll be age 70-1/2 by the end of the tax year for which you're making the contribution. That's consistent with other IRA provisions that require most of those turning 70-1/2 to start taking required minimum distributions from their traditional IRAs and other retirement accounts.
Surprisingly, the same restriction does not apply to Roth IRAs. As long as you meet the other requirements for IRA contributions, you can start, or add to, a Roth IRA regardless of how old you are. That's also consistent with certain other retirement account provisions, because Roth IRAs don't have distribution requirements.
After you (and your spouse) have stopped working
Based on the limits above, those under 70-1/2 might believe they're home free and able to contribute to IRAs. However, there's another time at which it's too late to start or add to an IRA: once you've stopped working.
IRA contributions are limited to the amount of earned income you have during a given year. So if you've retired, or otherwise stopped working, then your earned income for that year will be zero, and you won't be allowed to contribute to an IRA at all. That applies to both traditional and Roth IRAs.
There's an exception, however, for married couples. If you've retired, but your spouse still works, you then can typically open a spousal IRA. To qualify, the total amount that both spouses contribute to IRAs must not exceed the working spouse's earned income. However, the spousal IRA provision does let some retirees continue taking advantage of IRAs even after they no longer have the earned income they'd need to make an IRA contribution on their own.
For any given year, after mid-April is too late
Finally, it's also important to know how long you have to contribute to an IRA for a given tax year. IRAs are among the most flexible retirement savings vehicles because they let you make contributions for a given year even after the following year has already started.
Specifically, if you're eligible, you then can contribute to an IRA until the tax-filing deadline, without extensions, for that year. So for 2016 IRA contributions, you have until April 18, 2017 to start your IRA. After that, it's too late, and your only option will be to open an IRA for the 2017 tax year.
IRAs are an extremely useful way that you can save toward your retirement. But rather than asking when it will be too late to start an IRA, the better course is to make your IRA contributions as soon as possible each year. Even if you can only afford to save a little bit toward your retirement, putting the power of time on your side will make what seems like a monumental task a lot easier in the long run.