Can I open a Roth? Should I?

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Doom&Gloom
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Can I open a Roth? Should I?

Post by Doom&Gloom »

I am 73 and retired. DW is 59 and working part-time irregularly. She had planned to retire completely with the arrival of our first grandchild which happened this year, but she found she needs the additional income. We largely maintain separate finances but share common expenses equally. One of the reasons for that is that I am a saver and she tends to spend up to, and sometimes beyond, available funds. She receives a decent pension and could easily (imo) have quit working entirely a few years ago if she reasonably would cut her spending.

I receive a smaller pension and SS, and I have sufficient tIRA accounts for all realistic contingencies. Combined taxable income puts us at the boundary of the federal 22-24% brackets. The vast majority of our income is exempt from state tax.

I have no Roth, but from my research it appears that I can open one based upon her earnings. There is no consideration for her opening another retirement account of any sort. She has drained most of the ones she established completely when she wanted to buy something. She has one active retirement account but the balance is < $400. *sigh* I do not expect her earnings to push us past the point of being eligible to fund a Roth fully.

If I can indeed open a Roth, should I? It seems that I am on the boundary of it being worthwhile. I can reasonably expect to fund it via her earnings for only 3 or 4 years before she does retire completely. (When I belatedly looked at converting some of my tIRA to a Roth, it never seemed to be of much value.) So I would be looking at only contributing $28k, give or take $7k to the Roth. DW would be the beneficiary, but I expect that if/when I pre-decease her, that the life expectancy of the Roth from that point would not be very long, given her previous behavior.

I recently opened a taxable account for the first time in decades due to having enough excess cash on hand to do so. DW is TOD on that account. Should I simply continue to fund my taxable account rather than complicating my life with an additional retirement account? It seems to me that the benefits of establishing a Roth are tangible but minimal. Thoughts?
Last edited by Doom&Gloom on Tue Jun 08, 2021 2:54 pm, edited 1 time in total.
calwatch
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Re: Can I open a Roth? Should I?

Post by calwatch »

To avoid complexity, why not open an account at an institution where you already have an account? If the wife has enough earned income to match the Roth contribution, you can fund the Roth, it doesn't have to be "her" income since you are a single tax unit. And it certainly beats paying taxes on gains from your taxable account. Now, if that taxable income is in a savings account the amount saved in taxes is going to be minimal - perhaps $25 a year on a $7000 contribution (assuming 1% interest). But if it is in stocks, then the taxes saved could be substantial, as well as giving your spouse more tax free money if you predecease her, as the odds say should be the case.
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ruralavalon
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Re: Can I open a Roth? Should I?

Post by ruralavalon »

If your tax filing status is married filing jointly then you can fund a Roth IRA.

But why bother? I see no purpose.
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MishkaWorries
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Re: Can I open a Roth? Should I?

Post by MishkaWorries »

Have you ever contributed to a Roth before? If you withdraw any earnings before any account has been opened five years, you'll have to pay taxes on those earnings. Not a huge deal but another possibly reason not to complicate things.
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123
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Re: Can I open a Roth? Should I?

Post by 123 »

I'd say open the Roth. Money goes into it without any further taxation on income/growth. Seems like a pretty good deal to me. Only complication is 5 year rule. That might be a good excuse to tell your wife you have to leave it alone.
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Doom&Gloom
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Re: Can I open a Roth? Should I?

Post by Doom&Gloom »

MishkaWorries wrote: Tue Jun 08, 2021 1:40 pm Have you ever contributed to a Roth before? If you withdraw any earnings before any account has been opened five years, you'll have to pay taxes on those earnings. Not a huge deal but another possibly reason not to complicate things.
No. No previous Roth. Would that 5 year clock continue, restart, or disappear if I were to die prior to the end of five years? If it is still running and I die, I fully expect that there is a good chance that the Roth would never reach the age of five.

From the responses so far, it is seeming that my impression of it being almost a toss-up was about right.

edit:The question above is assuming that the Roth gets transitioned to an Inherited Roth in DW's name.
MishkaWorries
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Re: Can I open a Roth? Should I?

Post by MishkaWorries »

Doom&Gloom wrote: Tue Jun 08, 2021 2:58 pm
MishkaWorries wrote: Tue Jun 08, 2021 1:40 pm Have you ever contributed to a Roth before? If you withdraw any earnings before any account has been opened five years, you'll have to pay taxes on those earnings. Not a huge deal but another possibly reason not to complicate things.
No. No previous Roth. Would that 5 year clock continue, restart, or disappear if I were to die prior to the end of five years? If it is still running and I die, I fully expect that there is a good chance that the Roth would never reach the age of five.

From the responses so far, it is seeming that my impression of it being almost a toss-up was about right.

edit:The question above is assuming that the Roth gets transitioned to an Inherited Roth in DW's name.
I believe the five year holding period continues even if the owner passes before the five years is up. I'm not 100% sure on that but check out the wiki. It is a great resource for most things but especially Roth related questions.
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Lee_WSP
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Re: Can I open a Roth? Should I?

Post by Lee_WSP »

Doom&Gloom wrote: Tue Jun 08, 2021 2:58 pm
MishkaWorries wrote: Tue Jun 08, 2021 1:40 pm Have you ever contributed to a Roth before? If you withdraw any earnings before any account has been opened five years, you'll have to pay taxes on those earnings. Not a huge deal but another possibly reason not to complicate things.
No. No previous Roth. Would that 5 year clock continue, restart, or disappear if I were to die prior to the end of five years? If it is still running and I die, I fully expect that there is a good chance that the Roth would never reach the age of five.

From the responses so far, it is seeming that my impression of it being almost a toss-up was about right.

edit:The question above is assuming that the Roth gets transitioned to an Inherited Roth in DW's name.
Not only would your spouse be able to withdraw from an inherited spousal IRA before age 59.5; she's got 6 more months to go before she can withdraw from her own IRA's penalty free. Or perhaps she's already there.

The only reason I can think of off the top of my head to bother with it is if you wanted to move some funds from tax deferred to tax paid. The reason you'd do that is because your RMD's will be sufficiently large enough to outpace your spending. As such, you'd be moving money from tax advantaged (deferred) to taxable. Not a huge deal, but the dividend tax drag is an annoying aspect. Also if you spend it, there would be some cap gains taxes. Again, not a necessarily compelling reason to go one way or the other.
retiredjg
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Re: Can I open a Roth? Should I?

Post by retiredjg »

It appears to me you could open Roth IRA based on wife's income if you are married filing jointly and her income is higher than the amount you want to contribute. But you may not be filing jointly considering the other factors.

Like some others, I'm not sure I see much point to it.

It appears you might also put money into a traditional IRA and deduct if from your taxable income. That could serve a purpose if you are interested. However, if you are near the top of the 22% tax bracket that would put you near the limit to deduct if your wife is covered by a pension plan at work.However, sounds like she may not be.

Or you may just not want to add to IRA if you already have enough.
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Doom&Gloom
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Re: Can I open a Roth? Should I?

Post by Doom&Gloom »

Thanks for all the responses.

I'll probably give the Roth a pass for now, but I'll keep the option in the back of my head just in case.

Again, thanks for the discussion. It has certainly clarified my thinking on the matter which has been a big help.
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