I am in my mid-thirties and have nothing invested for retirement. Is it too late to start contributing to a retirement plan?


Key Takeaways

  • Even starting at age 35 means, you have 30 years to save for retirement, the compounding effect of investing adds up over time.
  • A traditional IRA allows a tax deduction for the contribution amount in the tax year it was made, but you’re taxed on distributions.
  • A Roth IRA has no upfront tax deduction for your contributions, but the distributions are tax-free in retirement.

How IRAs Work

IRAs are retirement savings vehicles that can hold many types of investments, including stocks, bonds, and funds that contain various securities such as exchange traded funds (ETFs) and mutual funds. Although there are several types of IRAs, two of the most common are traditional IRAs and Roth IRAs.

Traditional IRA

A traditional IRA allows you to save money and invest the funds for retirement while any investment earnings, gains, and interest grow tax-free. Also, traditional IRAs allow you to take a tax deduction for the contribution amount in the tax year that you make the deposit. When you withdraw the money in retirement, the money is taxed at your income tax rate.

Roth IRA

A Roth IRA also allows you to save and invest money for retirement while any investment earnings, gains, and interest grow tax-free. However, there is no upfront tax deduction for your contributions like with traditional IRAs, but your withdrawals or distributions are tax-free in retirement.

With all of the investment choices and the tax savings on gains from those investments, retirement accounts offer individuals the ability to save for their retirement even if they’ve fallen behind. However, the Internal Revenue Service (IRS) has various rules, guidelines, and limits for retirement accounts that investors should be aware of before opening an IRA.

Contribution Limits

In both 2020 and 2019, you may contribute up to $6,000 to either a traditional or Roth IRA. Alternatively, you may split the $6,000 between the two. For those over the age of 50, they can contribute an additional $1,000, which is called a catch-up contribution.

Most financial institutions will allow you to contribute small amounts periodically (weekly, monthly, etc.) until you reach your desired amount, provided the total amount does not exceed the contribution limit.

Tax Benefits

A Roth IRA is usually preferred by individuals who do not qualify for tax deductions associated with traditional IRA contributions or by those who want their IRA distributions to be tax-free.

Individuals who are eligible to receive a tax deduction for traditional IRA contributions may prefer to take the deduction now and realize the benefits upfront (as opposed to later on with the tax-free withdrawals of the Roth).

Your tax deduction is allowed in full for contributions to a traditional IRA if you (and your spouse, if married) aren’t covered by a retirement plan at work. However, there are limits to the tax-deduction feature of a traditional IRA if you or your spouse do participate in a retirement plan at work. As a result, there could be instances where you can only take a partial deduction or receive no deduction. The limits are based on your income and tax-filing status.


Since IRAs are retirement savings vehicles, the IRS imposes an early-withdrawal penalty of 10% if the money is withdrawn before age 59½. You may also need to pay income tax on your early withdrawal amount, depending on the type of IRA.


Annuities are also a good means of saving for retirement. Again, the most appropriate choice varies among individuals because everyone’s situation is different. As a result of the SECURE Act passed by the U.S. Congress in 2019, annuities have also become more portable, meaning they can be moved from one qualified retirement plan, such as a 401(k) to another.

It’s never too late to contribute to your retirement. Please consult a financial planning professional or tax specialist to determine the best retirement account, your tax plan, and specific investment strategy.

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