Can Retirees Open a Roth IRA?
A traditional Individual Retirement Account or IRA allows you to deposit money in an investment account without paying income tax on the deposits until you start withdrawing money. With a Roth IRA, you pay taxes on everything you deposit, but there's no income tax on the withdrawals. Unlike a traditional IRA, you can open a Roth account at any age, as long as you meet the IRS requirements.
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Time Frame
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With a traditional IRA, you can't make withdrawals until after age 59 1/2, the Charles Schwab website states, and you must start making minimum withdrawals after you turn 70 1/2. With a Roth IRA, you can withdraw the money you've put in at any time, though any interest or earnings must wait until after age 59 1/2. There are no minimum withdrawals required with a Roth: You take the money out on your own timetable or can keep it in indefinitely.
Features
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The IRS does have a requirement for funding your Roth account, the Fairmark website states: You have to have "compensation" in any year that you put money into a Roth IRA. Compensation means pay you earned working for someone else or for yourself, or received as alimony; if your income is entirely from other sources, such as Social Security or investments, you can't deposit anything in a Roth.
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Size
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The IRS limits how much you can donate to a Roth, as it does with other forms of IRAs. If you're over 50, however, you'll be allowed to put in more money each year to catch up on saving for retirement. Your maximum contributions may be reduced, Fairmark states, in any year when you don't have enough compensation to contribute the full amount, or your "adjusted gross income" -- the income on your tax form before you claim any exemptions or deductions -- rises above an IRS-set threshold.
Considerations
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Not only is there no minimum withdrawal required for a Roth IRA, there's no need to withdraw anything at all, as long as you live, the Bankrate website states. Whatever remains in the account when you die will pass on to the beneficiaries designated on the account. This will enable them to take out the money tax free and to do so without going through probate, as the IRA isn't part of your will.
Potential
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If you have a 401(k) or Traditional Roth, you may be able to roll them over into your Roth IRA -- for example, when you quit your job and stop making contributions to your 401(k). You may have to pay taxes on the money you transfer to the Roth, but when you or your heirs take it out down the road, it'll be tax free. The IRS rules are complicated and the tax consequences could be expensive, so plan carefully before you make the move.
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