The “Family Savings Act of 2018” (H.R. 6757) proposes three IRA changes that could help seniors and families.
Two of the three proposals in the Act are geared towards those IRA owners over age 70½.
1. Repeal of age 70½ restriction for making traditional IRA contributions
2. Exempting RMDs for those with retirement account balances of $50,000 or less
The third proposal allows penalty-free withdrawals for the birth or adoption of a child.
Repeal Of Age Restriction For Making Traditional IRA Contributions—Effective After 2018
It’s about time for this one. This would be a welcome change. There are no age restrictions for contributing to a Roth IRA, yet under current law a contribution cannot be made to a traditional IRA for the year an IRA owner turns 70½ or later years. The current restriction does not apply to SEP or SIMPLE IRAs, where contributions can continue to be made despite age as long as the individual is otherwise eligible. This change would bring parity to Roth IRAs.
Granted this only affects those still working after age 70½, but removing the age restriction could provide a double benefit for an older couple where both are over age 70½ where one spouse is working and the other isn’t. A spousal IRA contribution can be made for the non-employed spouse doubling the IRA contribution for the couple to $13,000 ($6,500 each).
In addition, if a client’s income is too high to contribute to a Roth IRA due to the income restriction for Roth IRA contributions (another restriction that should be removed, but is not part of this proposal) a back-door Roth IRA conversion can be done after age 70½ assuming the person has earned income to qualify to make a traditional IRA contribution. Currently once a person reaches age 70½, even if they have the earned income, they cannot do a back-door Roth due to the age 70½ restriction for contributing to the traditional IRA, which is the first step in the back-door Roth conversion process.
Now for the complicated part which seems to be part of any tax law. Assume your client over age 70½ is still working and wishes to contribute to a traditional IRA.