Are You Too Old to Benefit from a Roth IRA?

Are you too old to benefit from a Roth IRA? No! In fact, I’d say, an absolutely not, okay. But first, before we get into that, let’s talk about some rules on that Roth IRA and then we’ll talk about why you’re never too old to benefit from that. First off, the rules, there’s contribution limits. Okay? So for 2024, the max that you can contribute to a Roth IRA is $7,000 if you’re under the age of 50 and 8,000 if you’re over the age of 50. Okay? So you can’t contribute more than that. And there’s also some income limitations that go along with that. So, if you are a single filer and you show more than $161,000 of income, you cannot make a contribution to a Roth. And then if you’re a married couple, you cannot make a contribution if your income is over $240,000 for 2024. Also, the big rule to remember here with a Roth account is that you can only make contributions to a Roth account if you have earned income. And you’re probably think, well Nick, I’m retired. Am I really too old to benefit from the Roth? I can’t even contribute to it, right. Well, yeah, you can’t contribute to it but you can still fund this Roth account, okay. The way to do that is through Roth conversions, okay. I am assuming most of us have some sort of pre-tax retirement account whether it’s a 403(b), a 401(k) or the IRA for an example. So to fund that Roth IRA without having earned income, you simply take the money from the pre-tax traditional IRA account, pay the tax on it now and get it into that Roth account. It’s called a Roth conversion. Okay? Now you want to make sure you’re meeting with your advisor, your tax planning advisor, to make sure that you’re not taking out too much on one year, you want to spread it out so you don’t pay too much in taxes, but that is a great way to get that Roth account funded even if you’re later in life, retired, you don’t have that earned income, you can still open up that account. But now, why would you want to do that, right? When you’re older, retired, and you don’t have any income. Well, there’s a bunch of different reasons why. Okay? The first one is, the tax-free growth. Okay? You know, I am assuming you’re not going to spend all of your retirement portfolio in the first year of retirement, right. You’re planning for 10, 15, 20 years of retirement. Okay? So the portion that you’re not going to touch for 20 years, why not get that in a Roth account now where tax rates are at now because tax rates are probably going to go higher in the future. Right? So get Uncle Sam out of your pocket by doing those Roth conversions because the money grows tax-free. And then number two, you don’t have any required minimum distributions. So, you know, the traditional IRAs that you might have right now, they are going to force you, Uncle Sam says, hey we want some tax revenue. Right? So, they are going to force you to start taking money out at age 73 and up to age 75 depending on your birth year. With a Roth IRA, you don’t have to worry about that. You can hold that money for as long as you want. They don’t force you to take it out. Another great benefit of the Roth IRA is the tax diversification for income in retirement. What does that mean, right? Well, it just gives you some flexibility to be able to pull income from different tax-wrapped accounts. So instead of just having the traditional IRA where all of that is taxable when you take the money out, if you have a Roth IRA as well, you can control your tax situation a little bit, okay. You can pull from the pre-tax account, pay the tax, but maybe you don’t want all of your Social Security become taxable but you still need some income, so you can pull from the Roth. So it doesn’t count as income and it’s not taxable. And then finally, the estate planning benefits of a Roth account are just awesome. Okay? I have so many clients where they are doing Roth conversions purely because they want to leave a tax-free legacy to their heirs. So what they are doing, they are maximizing whatever current tax bracket they are in, they are paying the tax on it now, and they know, hey when I pass away, the funds are going to go my beneficiaries and they don’t have to worry about taxes. Now when the heirs do inherit the IRA, there are certain rules where they do have to deplete the Roth account at that point but it’s a non-taxable event. So there you have it. Are you too old to benefit from a Roth account? Absolutely not. If you have questions on how Roth accounts work or you want to set one up yourself, please don’t hesitate to give us a call on the number on the screen. And you can find out more information online. Go to https://url.us.m.mimecastprotect.com/s/LIYCC1wpvrsxYZOjuAI9CV2aY8?domain=youtube.com and follow us, click, like, share us and subscribe.