Can You Open a Roth IRA If You Are Retired?
Even if you're receiving Social Security, you can open a Roth Individual Retirement Account (IRA) if you have qualifying income. There are some reasons recent retirees might consider a Roth, especially if you are self-employed or have a part-time job providing income you don't need for expenses.
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Basics
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Taxes are collected on traditional IRAs when money is withdrawn. Roth contributions are made only with after-tax funds; no taxes are paid on distributions.
Qualifying Income
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Contributions to any IRA can be no higher than the amounts you claimed as income on your tax return, from an employer or in tips, from self-employment or alimony. Plus, the Internal Revenue Service limits IRA contributions to $5,000 a year, $6,000 if you're older than 50.
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Income Limits
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If your modified adjusted gross income is too high, you will be ineligible to open or contribute to a Roth. The IRS sets the cutoffs each year. For 2010, it's $105,000 for single people, $166,000 for married couples filing jointly.
Considerations
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You can't contribute to traditional IRAs the year you turn 70½ or thereafter, and that year you must begin mandatory distributions. Neither rule applies to a Roth. You never have mandatory Roth distributions. You can withdraw money contributed to a Roth tax-free any time, but you cannot withdraw investment gains until five tax years after your first contribution, unless you qualify for a tax-free withdrawal covered in IRS Publication 590.
Estate Differences
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Heirs must pay taxes on withdrawals from a traditional IRA and must continue mandatory distributions. There are no taxes or mandatory withdrawals with inherited Roth distributions.
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