Am I too old for a Roth?

[teller80]

We're in our mid-fifties and in the 22% tax bracket. Should I continue doing a traditional IRA, or put it in a Roth and plan and not withdraw those funds until last?

Or is this the point at which I should consult a financial planner? Thanks!

 

[2TxAgs]

You're NEVER too old to save money And still good reasons to save in a Roth, even if you don't have 4-5 decades of non-taxed compounding in front of you. 1) Don't have to start taking distributions at 70 1/2 like with a standard IRA, so all your money can continue to grow tax free. 2) If you DO need money sooner, you can pull out your contributions (NOT your gains) any time cuz you've already been taxed on that money. If you hold it 5 yrs, and are older than 59 1/2 at that time, you an also pull out your earnings without them being taxed or penalized.

Might be time for a financial planner, but also lots of great info online regarding preparing for retirement and positioning your money in the 5-10 years prior.

 

[Psychodisney]

I'm certainly not a financial planner but am also in my 50s and looking forward to retirement. One thing I've read about a Roth is that it is recommended if you might have a higher tax bracket in retirement than you do now. Do you think that will be the case? If not, I'd stick with the traditional IRA.

 

[drnp]

Never hurts to talk to a professional. IMO If you have a healthy traditional IRA and dont have a Roth at all, it makes sense to at least create another bucket of money that will never be subject to minimal distributions as the Roth money is. Also, since you are in the 22% bracket now, chances are you could be in a higher bracket in retirement. Remember, the lower personal income brackets in the last tax reform law were only temporary. By the time you retire, the old (and higher) brackets may come back into effect.
All things being equal, retirees alway benefit from having taxable, tax deferred, and tax free buckets of savings to allow you to adjust no matter what the tax environment is when you retire.

 

[barb969]

You aren’t too old, that has nothing to do with a Roth. There are 2 things to consider-

There is a income limit. If you make more than that you can’t do a Roth. Sorry I don’t know but it more than $150,000

You have to have earned income (not pension, interest, or SS). Your Roth can not exceed this amount

 

[tvguy]

I'm certainly not a financial planner but am also in my 50s and looking forward to retirement. One thing I've read about a Roth is that it is recommended if you might have a higher tax bracket in retirement than you do now. Do you think that will be the case? If not, I'd stick with the traditional IRA.

I'm not a financial planner either, but I think most folks will be in a lower tax bracket when they retire. I expect my TAXABLE income to be much lower. So I am not doing a Roth because I want to delay paying the taxes until I am retired and when I am at a lower tax rate.
My mom was retired for 28 years and her taxable income was below the level of even having to file a tax return for all but but 3 years. And she didn't want for anything. But her expenses were minimal since her house had been paid for for 25 years before she retired, and her car paid for for 9 years before. She did however, have to buy a new car 18 years after retiring.

 

[Anthony1971]

Another issue with a Roth besides the tax bracket is if you invest now you assume the stock market will rise if it does not you are paying the tax on a loss and you can not write it off as a traditional loss... Bottom line is when you need the money you need the money you can not wait for the market to recover. At this point you can also consider putting you money into CD's as rates are going up.. it is easy to find 1 years a 2.5-2.7% and 5 years at a little over 3%. Yes you have to pay tax on the interest but that is only a .22% loss of what you make... A Roth just like a traditional has the risks of loss as above and fees which can top 1% plus yearly fees so you will need to be in a investment that has a return of closer to or over 4% depending on the fees year after year... even a low risk option with low fees which will have has the same yearly fees as others, you will likely fair better with a CD or gain nothing but extra hassle...it is your job to understand ALL the options available to you including investing in tax free bonds and many other options... never take any persons advice until you do your own research and are comfortable with and understand all the pros and cons.

 

[georgina]

A Roth does not need to be in risky investments, nor does it need to have high fees. Some of our Roth is in low cost Vanguard funds with lower risks. There are no fees over the regular mutual fund expenses. Heck, it could even be in a stable money market fund if someone was really risk adverse.

The main issue is will your tax rate be higher now or in the future when you want to withdraw the money? That is a specific question for each person to think about. I am not planning to need my Roth at all and plan to pass it on to my kids as an inheritance.

 

[QueenIsabella]

Will you have heirs? A Roth might be a good way to get them some money, tax-free. If you die with a regular IRA, heirs will have to pay taxes on any withdrawals. Just something else to consider.

If the stars have aligned for you to put money in a Roth (i.e., you have the right income, the spare $$, etc.), go ahead. You won't have the luxury of time like a recent college graduate would, but you can still earn gains, and eventually take them out tax free.

We're in the group of people who will make more money in retirement, thus moving to a higher tax bracket. It's the price we pay for being good savers.

 

[Frwinkley]

We too are in our mid 50's and plan to retire in 6 years or so. I want as many tax breaks as possible right now because I know we will be in a lower tax bracket once we retire. After maxing out our 401k, I intend to open a traditional IRA for that purpose. We will be able to benefit from the tax break over the next 2 years; after that, our income will be too great. I am a teacher, so I already know what my future income will be until my retirement. Once the traditional IRA is no longer an option for us, I will save from money in a 403b, which will also give us some tax savings.

 

[amcnj]

I guess I would look at my currrent tax bracket and determine what a tax deferred account would save me now, versus what rate I expect to be paying in retirement. With the deferred account the withdrawals will all be taxed, while the Roth has you paying the taxes on the contributions now, but then withdrawals later, including any earnings, are not taxed. So a Roth still could be beneficial to you, and mid-fifties today could still mean decades of growth.

Are you going to need the money in the iras in retirement, and right away? When do you plan to retire, in the next five years, ten, more? Even if you do need to make withdrawals right away upon retiring, is there enough in the regular ira account to allow you to leave the Roth alone a while so it can continue to grow tax free? Or on the other hand, will withdrawing some of the Roth each year allow you to be in a lower bracket, thus lowering the tax rate on some of the regular ira money withdrawn each year? The regular ira will start having minimum required distributions in the year you turn 70.5; you can defer that first one, but that means two distributions the next year, and possibly a higher bracket for some of the money. The Roth has no required distributions. Will having the Roth allow you to cover a large unexpected expense without bumping you into a higher bracket in retirement for that year?

There is a lot to think about!

 

[kathy884]

I'll be 58 and will be doing a ROTH for the first time in 2019 (first year I qualify for this). I may lower what I am doing in my 401K and do this instead. Of course, I'll still do enough there for my company match, and still have the total for the two at about 15% or at least that is my plan. This is because next year is the first year DH is retired from an income standpoint and won't be collecting Social Security yet, so with only my income we qualify for me to be able to do a Roth IRA. I don't think you are ever too young or too old for that.

I have to spend some time doing some calculations, but it might even pay for us to move monies in qualified (pre tax retirement plan 401K or IRA money) to be Roth IRA monies and pay taxes on that next year when we are in a lower tax bracket and have DH delay taking social security. I need to crunch the numbers and come up with what looks like our best bet. And maybe I'll even check in with a financial planner. Sometimes people who have been socking away qualified (pre tax monies for retirement) for a long time find when they hit 70 1/2 and have to take minimum distributions that they are in a fairly high tax bracket that might even be a higher tax bracket than when they were working. We don't have pensions, though, just our 401K savings for retirement and Social Security, so very well might need to be taking out money sooner rather than later to live on.

There aren't though hard and fast rules that work for everyone.

 

[powelweb]

You aren’t too old, that has nothing to do with a Roth. There are 2 things to consider-

There is a income limit. If you make more than that you can’t do a Roth. Sorry I don’t know but it more than $150,000

You have to have earned income (not pension, interest, or SS). Your Roth can not exceed this amount

Actually, you can do what is known as a "backdoor" Roth contribution with effectively any income level- it just requires that you make the IRA contribution initially to a traditional IRA first, and then you convert it to your Roth IRA account.

You may also have the option of a Roth account within your Employers 401k or 403b set up instead of the more traditional pre-tax options, so you should look into both possibilities.

 

[mrslur]

Actually, you can do what is known as a "backdoor" Roth contribution with effectively any income level- it just requires that you make the IRA contribution initially to a traditional IRA first, and then you convert it to your Roth IRA account.

You may also have the option of a Roth account within your Employers 401k or 403b set up instead of the more traditional pre-tax options, so you should look into both possibilities.

Yes, this!

 

[QueenIsabella]

Actually, you can do what is known as a "backdoor" Roth contribution with effectively any income level- it just requires that you make the IRA contribution initially to a traditional IRA first, and then you convert it to your Roth IRA account.

You may also have the option of a Roth account within your Employers 401k or 403b set up instead of the more traditional pre-tax options, so you should look into both possibilities.

Be aware that, when you do this, you have to pay taxes on the amount converted. That might be obvious to some, but I wanted to be clear on that. Lat year, DH converted $50k from an IRA to a Roth, on the advice of our accountant. It turned out we had a large tax bill in April--ouch! But, we've agreed that the Roth will be the last thing we touch, ever. We hope to leave the money to our kids in 30-something years, plus all the accrued (non-taxable) gains. we might convert more in the future, but we'll have to be ready for the big tax bite.

 

[tvguy]

We're in the group of people who will make more money in retirement, thus moving to a higher tax bracket. It's the price we pay for being good savers.

The whole tax situation can be pretty complex depending on the source of your income. Right now I expect to have a lower taxable income level in retirement, which means my spendable "after tax" income will be higher than I have now. Or so say our Financial planner and CPA.

 

[tvguy]

Be aware that, when you do this, you have to pay taxes on the amount converted. That might be obvious to some, but I wanted to be clear on that. Lat year, DH converted $50k from an IRA to a Roth, on the advice of our accountant. It turned out we had a large tax bill in April--ouch! But, we've agreed that the Roth will be the last thing we touch, ever. We hope to leave the money to our kids in 30-something years, plus all the accrued (non-taxable) gains. we might convert more in the future, but we'll have to be ready for the big tax bite.

We consulted our Financial Planner on CPA on rolling over our IRA's into Roths. Made ZERO economic sense at our age. We would have lost 1/3 of what we had saved and earned to taxes. I without taking MORE money out of the IRA, there would have been no way we could have afforded that tax hit. But we started our IRAs in 1979, and with additional contributions, 401k rollovers, and investment returns. And we were in our 50's at the time. No problem with starting a Roth, not so sure everyone can benefit from rolling over into a Roth.

 

[QueenIsabella]

We consulted our Financial Planner on CPA on rolling over our IRA's into Roths. Made ZERO economic sense at our age. We would have lost 1/3 of what we had saved and earned to taxes. I without taking MORE money out of the IRA, there would have been no way we could have afforded that tax hit. But we started our IRAs in 1979, and with additional contributions, 401k rollovers, and investment returns. And we were in our 50's at the time. No problem with starting a Roth, not so sure everyone can benefit from rolling over into a Roth.

True, every situation is different. For better or worse, my MIL died last year, leaving DH with 7 (!!) IRAs--6 of them traditional, 1 Roth. So, we are now awash in RMDs (required minimum distributions), and it will only get worse when DH turns 70 1/2. This sounds like a "good" problem to have, but the majority of his inheritance is locked up in the IRAs, and we have to tread carefully to avoid getting hosed on taxes. OTOH, if we work it right, we can have a very comfortable retirement, fund college for our two remaining youngsters, and leave a nice bit to the kids.

 

[teller80]

... Don't have to start taking distributions at 70 1/2 like with a standard IRA,

I didn't know Roth's were outside the RMD, thank you.

you might have a higher tax bracket in retirement than you do now. Do you think that will be the case? If not, I'd stick with the traditional IRA.

I honestly don't know, I really should see if we'll be in a higher bracket. I just assumed we would be, but I will check into that. Thanks!

At this point you can also consider putting you money into CD's as rates are going up.. .

That is a great idea! We have money in CD's now and one is due in a few weeks, I think I'll use that money to put in the Roth.

I am not planning to need my Roth at all and plan to pass it on to my kids as an inheritance.

Will you have heirs? A Roth might be a good way to get them some money, tax-free. If you die with a regular IRA, heirs will have to pay taxes on any withdrawals. Just something else to consider.

Great advice, thank you.

you have to pay taxes on the amount converted. That might be obvious to some, but I wanted to be clear on that.

I did know that, but thanks for the reminder. I can imagine the tax bill would be a unpleasant surprise to some. I don't *think* it would be beneficial to convert at this point, but I will check and see.



Thank you everybody for the good advice, you've given me plenty to think about.

 

[tvguy]

True, every situation is different. For better or worse, my MIL died last year, leaving DH with 7 (!!) IRAs--6 of them traditional, 1 Roth. So, we are now awash in RMDs (required minimum distributions), and it will only get worse when DH turns 70 1/2. This sounds like a "good" problem to have, but the majority of his inheritance is locked up in the IRAs, and we have to tread carefully to avoid getting hosed on taxes. OTOH, if we work it right, we can have a very comfortable retirement, fund college for our two remaining youngsters, and leave a nice bit to the kids.

Yup, we experienced this when my MIL passed. She was still working, was 64 and had not started making withdrawals from her IRA. My wife's only legal option was to withdraw the money, and pay income
taxes on it. The taxes literally were 50% of the balance.

My mom, on the other hand, retired at 62, and waited until age 70 1/2 when she was required to take minimum distributions. But back then, you were allowed to average YOUR live expectancy with your BENEFICIARY'S life expectancy to reduce the minimum distribution. I don't think you can do that anymore. So when she passed away at age 90, 5 years ago, I had the option of cashing in the IRA and paying taxes on it, or continuing the distributions she has been getting. Those distributions are taxable, but I continued them, and that is the money we use to pay our long term care insurance premiums every year. Thanks mom for the monetary gift that I will continue to get for the rest of my life. And if I have a financial emergency, I can still opt to pay the taxes and case it in. But the investments I have had that IRA in for the past 5 years earning more than the minimum distribution, so I get the money, and the balance continues to grow.