As you grow older with each passing year, the prospect of retirement becomes all the more real. Retirement is a time in life where you have the opportunity to pursue hobbies, travel, spend quality time with your family and friends, and live a relaxed life after you have moved on from the stress and deadlines of work. This is possible if you have planned for your retirement in a financially sound way.
Most financial experts advise to start saving for retirement as early as possible. Your 20’s are considered to be an ideal time to start saving and investing your money. However, a lot of folks fail to realize the importance of these years and end up wasting them. Only when they are in their 30s or 40s, do they realize their mistake. But not to fret. It is not always possible for one to start retirement planning early in their career. There can be several reasons why you could not start early enough. You may have been struggling to earn enough money or may have lacked the necessary motivation. You could not have had the necessary financial education to plan for your financial future. However, as time goes on, you are left with no choice but to take matters into your own hands.
Considered to be a great option for retirees or those planning for their retirement, a Roth IRA can help you save and invest your money securely to safeguard your future. If you want to know more about a Roth IRA and its benefits, along with how you can open one, consult with a professional financial advisor who can assist you with the same. However, if you have been unable to save and are wondering if you can open an IRA after you turn 60, here is what you need to know.
What is a Roth IRA?
A Roth IRA is an individual retirement account where you contribute your after-tax dollars and can make tax-free withdrawals in retirement. Since the money invested by you in a Roth IRA account is not tax-deductible, you have no tax liabilities in retirement as long as you make qualified withdrawals. A Roth IRA would be a wise choice for people who think their taxable income will be higher in retirement than it is in the present. You can open your Roth IRA account with a bank or a brokerage firm, either online or offline. In addition, you do not have to take out mandatory required minimum distributions (RMDs) if you have invested in a Roth IRA. But if you have a traditional IRA or a 401(k) retirement account, you must withdraw RMDs after the age of 72 years. Typically, the first RMD must be withdrawn by April 1 of the following year when you reach 72 years of age. Since you are not mandated to take out RMDs in a Roth IRA, it makes it a more flexible retirement planning tool compared to its counterparts.
When can you open a Roth IRA?
There is no set age limit to open a Roth IRA. So, if you are thinking of opening a Roth IRA after age 60, you may do so. Moreover, you can contribute to a Roth IRA as long as you want, as long as your contribution is made from earned income. There are income limits that must be met in a Roth IRA, failing which you cannot open an account or contribute to one. The income limits for a Roth IRA as of 2022 are as follows:
- If you are a single tax filer, your modified adjusted gross income (MAGI) should be $144,000 or less to open a Roth IRA.
- If you are a married tax filer filing jointly, your joint MAGI should be less than $214,000 to open a Roth IRA.
Further, there are no restrictions on how or where you earn an income from. It can be either through working full time or part-time, for a company or through your own business. But your investment returns, pension, dividends, or Social Security benefits are not considered as an income. Though some of these are included in your MAGI, they would not be counted when calculating your income for a Roth account.
Should you open an IRA after age 60?
Since there is no prescribed age limit for opening a Roth IRA account, you can avail several benefits if you choose to open a Roth account. For those investors who wish to contribute to a Roth IRA after the age of 60, they can take advantage of several benefits such as:
- The yearly contribution limits for a Roth IRA differ for people below the age of 50 and over the age of 50. As of 2022, if you are less than 50 years of age, you can contribute up to $6,000 to the account annually. But if you are 50 years or older, you can contribute an additional $1,000, bringing your contribution up to $7,000. This is beneficial for investors who are 60 years of age or older since they can contribute more and ultimately accumulate more savings. If you plan on working beyond your 60s, you can benefit from this and save up a significant sum of money.
- As aforesaid, a Roth IRA does not mandate withdrawal of mandatory RMDs. Therefore, if you open a Roth IRA account after reaching 72 years of age, you would not be mandated to take any distributions. You can decide when or if you want to withdraw your money. You can let the funds remain in the account and not withdraw them at all. The decision rests entirely with you.
- If you cash out your IRA after 60, you eliminate any possibility of attracting a penalty. As per the IRS, any withdrawals made from a Roth IRA account before the age of 59.5 years incur a 10% penalty but doing so after reaching the stipulated age does not. You can withdraw your funds as you wish to do so.
- You can pass your Roth IRA to a beneficiary or heir without attracting any tax liability. By opening a Roth IRA after age 60, you can take care of your personal goals and needs as well as ensure your children and grandchildren are looked after once you are gone. A Roth IRA is helpful when it comes to estate planning as it offers hassle-free transfers to your next of kin. Additionally, your heirs do not have to pay any tax on the funds received from the Roth IRA.
- You also have the option of opening a Roth IRA for your spouse. One thing to note is that the contribution limits ($7,000 over the age of 50 years regardless of whether your spouse earns an income or not) for a spousal IRA are the same as the other Roth IRAs. Though, to be able to contribute for your spouse you still need to have an earned income.
Things you should consider before opening an IRA after you turn 60
While a Roth IRA offers several benefits, it may be prudent to consider the following before you open a Roth IRA account:
- To make penalty free withdrawals from your Roth IRA account, you need to have held the account for at least five years and made contributions to it. It may not seem like a big con if you open your account in your 30s or 40s, however, it can turn into an inconvenience when you are older. If you open your Roth IRA after turning 60, you would have to wait till you reach 65 years of age before you can use your money. To ensure that you have financial liquidity in your golden years, you would need alternative sources of income to rely on. If you are working part-time and contributing to your Roth IRA at the same time, you may need to take out money from your other investments or pension accounts. Doing so would help you cover your other expenses while your income from your job can be used to make contributions for your Roth IRA to meet your future goals. For those investors having a full time job, it would be easier for them to manage their finances despite the 5 year holding rule.
- You need to be aware of what constitutes your MAGI. Say, for instance, you are using your Social Security benefits, you cannot use that money to contribute to your Roth IRA since it is not considered to be a valid income. However you can use these benefits to boost your day to day finances so you use less of your income. The subsequent saved income can be used to contribute towards your Roth IRA. Now when it comes to utilizing your Social Security benefits, there are two differing opinions here. The first one consists of investors who wish to maximize their Social Security benefits. Rather than withdrawing their benefits at the full retirement age, they wait and delay their withdrawals. Doing so helps them boost the value of their Social Security check. The second group of investors is of the opinion that you should withdraw your Social Security benefits at the earliest opportunity so that you are able to contribute more to your Roth IRA. Both these choices can result in different and unique outcomes. This would rest on how much you contribute, the length of the investment period, your overall financial standing and expenses, etc. There is no one shoe fits all approach here so you may be served better if you assess each situation carefully and make a decision based on what offers you better returns. You may also reach out to a professional financial advisor and take their opinion on the matter.
- If you are working in your 60s or later, you do not have to solely rely on a Roth IRA. You can consider other options like a 401(k) workplace account that will enable you to boost your savings even further.
- Further, you have the option of converting your traditional IRA to a Roth IRA after you turn 60. However, do note that you would still be liable to pay taxes on all previous contributions made to the account along with any earnings that you have made.
- As an investor you can have multiple Roth IRAs but you need to be careful not to exceed the total contribution limits for the year. It stays the same whether you have one or more than one Roth IRA account.
- Lastly, you cannot contribute more than you earn in a financial year.
To summarize
As you approach the golden years of your life, it can become quite challenging to live as you did when you were younger due to reduced opportunities and increasing expenses. It can be difficult to find a job after you turn 60, not to mention you may have to spend a lot more on your health expenses. You can consider contributing to a Roth IRA if you wish to have additional savings for your retirement and are able to find work to do so. Since there is no age limit when it comes to opening a Roth IRA account, you can take up this option to safeguard your old age financially. Further, you should be able to use your pensionable income and Social Security benefits to meet your living expenses. If you require help understanding how to use a Roth IRA after you reach 60 years of age and maximize its benefits, you can consult with a financial advisor in your area.
To get in touch with a fiduciary advisor who may help you open a Roth IRA account and explain its various benefits, use the free advisor match service. Based on your requirements, the platform matches you with 1-3 advisors that may be suited to meet your financial needs and goals.