Roth IRA after retirement?

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ocman
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Roth IRA after retirement?

Post by ocman »

I just retired (65) and realize I should've started investing about 40 years ago, doh!

I have a small pension and collecting social security. I have no assets other than savings account and no debt.

Does it make sense to open a Roth IRA especially since I won't be able to contribute after this year unless I get a job?

Thanks,
Jerry
exodusNH
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Re: Roth IRA after retirement?

Post by exodusNH »

ocman wrote: Thu Dec 15, 2022 11:45 am I just retired (65) and realize I should've started investing about 40 years ago, doh!

I have a small pension and collecting social security. I have no assets other than savings account and no debt.

Does it make sense to open a Roth IRA especially since I won't be able to contribute after this year unless I get a job?

Thanks,
Jerry
You certainly can. It'll only be $7000; it won't be life changing. If you manage to earn 7% per year for 20 years and never withdraw until then, it'll have a value of about $27,000 in 2042.
twh
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Re: Roth IRA after retirement?

Post by twh »

ocman wrote: Thu Dec 15, 2022 11:45 am I just retired (65) and realize I should've started investing about 40 years ago, doh!

I have a small pension and collecting social security. I have no assets other than savings account and no debt.

Does it make sense to open a Roth IRA especially since I won't be able to contribute after this year unless I get a job?

Thanks,
Jerry
Considering you will no longer have earned income...
If you have an IRA you should open a Roth IRA and then convert at least $100 now.
If you don't have an IRA, you don't need to open the Roth.
The idea behind opening a Roth would be for any conversion from tIRA to Roth and getting the 5 year clock on first opening a Roth.
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

twh wrote: Thu Dec 15, 2022 12:28 pm If you don't have an IRA, you don't need to open the Roth.
I don't have an IRA, was thinking about a Roth IRA for $7000 then getting some Vanguard Index Funds, then my 5 year clock would start.
chinchin
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Re: Roth IRA after retirement?

Post by chinchin »

Maybe for bankrupcy protection, or tax purposes if you have any heirs. Otherwise I don't see the point if you don't intend on having any earned income in the future.

Edit: On second thought I don't see anything to lose, so might as well do it.
Last edited by chinchin on Thu Dec 15, 2022 1:44 pm, edited 1 time in total.
not financial advice
chinchin
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Re: Roth IRA after retirement?

Post by chinchin »

ocman wrote: Thu Dec 15, 2022 12:45 pm
twh wrote: Thu Dec 15, 2022 12:28 pm If you don't have an IRA, you don't need to open the Roth.
I don't have an IRA, was thinking about a Roth IRA for $7000 then getting some Vanguard Index Funds, then my 5 year clock would start.
If you don't have a traditional IRA or 401k to convert, the 5 year clock doesn't matter.
Last edited by chinchin on Thu Dec 15, 2022 1:07 pm, edited 1 time in total.
not financial advice
twh
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Re: Roth IRA after retirement?

Post by twh »

ocman wrote: Thu Dec 15, 2022 12:45 pm
twh wrote: Thu Dec 15, 2022 12:28 pm If you don't have an IRA, you don't need to open the Roth.
I don't have an IRA, was thinking about a Roth IRA for $7000 then getting some Vanguard Index Funds, then my 5 year clock would start.
If you don't have an IRA and you don't have a 401k that could become and IRA, then there is no way for you to get $7000 (or any amount) into a Roth IRA. You can only contribute to a IRA or a Roth IRA if you or your spouse has earned income. So, stock dividends, interest, pensions and SS income don't count.
chinchin
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Re: Roth IRA after retirement?

Post by chinchin »

twh wrote: Thu Dec 15, 2022 12:59 pm
ocman wrote: Thu Dec 15, 2022 12:45 pm
twh wrote: Thu Dec 15, 2022 12:28 pm If you don't have an IRA, you don't need to open the Roth.
I don't have an IRA, was thinking about a Roth IRA for $7000 then getting some Vanguard Index Funds, then my 5 year clock would start.
If you don't have an IRA and you don't have a 401k that could become and IRA, then there is no way for you to get $7000 (or any amount) into a Roth IRA. You can only contribute to a IRA or a Roth IRA if you or your spouse has earned income. So, stock dividends, interest, pensions and SS income don't count.
OP is saying they "just retired" so I assume they have earned income for 2022.
not financial advice
twh
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Re: Roth IRA after retirement?

Post by twh »

chinchin wrote: Thu Dec 15, 2022 1:06 pm
twh wrote: Thu Dec 15, 2022 12:59 pm
ocman wrote: Thu Dec 15, 2022 12:45 pm
twh wrote: Thu Dec 15, 2022 12:28 pm If you don't have an IRA, you don't need to open the Roth.
I don't have an IRA, was thinking about a Roth IRA for $7000 then getting some Vanguard Index Funds, then my 5 year clock would start.
If you don't have an IRA and you don't have a 401k that could become and IRA, then there is no way for you to get $7000 (or any amount) into a Roth IRA. You can only contribute to a IRA or a Roth IRA if you or your spouse has earned income. So, stock dividends, interest, pensions and SS income don't count.
OP is saying they "just retired" so I assume they have earned income for 2022.
:thumbsup
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

chinchin wrote: Thu Dec 15, 2022 12:50 pm Edit: On second thought I don't see anything to lose, so might as well do it.
I could always get a part time job to earn a little extra money and be able to contribute to a Roth IRA.
twh
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Re: Roth IRA after retirement?

Post by twh »

ocman wrote: Thu Dec 15, 2022 5:23 pm
chinchin wrote: Thu Dec 15, 2022 12:50 pm Edit: On second thought I don't see anything to lose, so might as well do it.
I could always get a part time job to earn a little extra money and be able to contribute to a Roth IRA.
Well...if you have some earned income this year, just open a Roth even if it only is for $100. That will get the 5 year Roth open clock moving if you ever need that as an option.
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FiveK
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Re: Roth IRA after retirement?

Post by FiveK »

ocman wrote: Thu Dec 15, 2022 11:45 am I have a small pension and collecting social security. I have no assets other than savings account and no debt.
Depending on your definition of "small" and "how much?" social security, you may have a very low tax rate in retirement. If so, contributing to a traditional IRA this year instead of Roth might be best for you in the long run.

See the first few sections of the Traditional versus Roth wiki article for more.

It won't make a huge difference either way, but you have to pick one so expending a little thought about it may be worthwhile. Good luck!
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Re: Roth IRA after retirement?

Post by celia »

twh wrote: Thu Dec 15, 2022 5:33 pm Well...if you have some earned income this year, just open a Roth even if it only is for $100. That will get the 5 year Roth open clock moving if you ever need that as an option.
And if you get any money in the Roth this year, the 5-year clock will be considered as starting last January. So if you have a big emergency in 4 years and 1 month, you will be eligible to take tax-free distributions at that time.

(Technically, the contributions will be available for withdrawals at any time as tax-free but the growth can’t be withdrawn tax-free until the 5 year clock is over.)
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Re: Roth IRA after retirement?

Post by JoeRetire »

ocman wrote: Thu Dec 15, 2022 11:45 am I have a small pension and collecting social security. I have no assets other than savings account and no debt.

Does it make sense to open a Roth IRA especially since I won't be able to contribute after this year unless I get a job?
One year's worth of contributions isn't going to make any material difference.

If you get a job, and don't need the money, it might make sense.
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Re: Roth IRA after retirement?

Post by VanGar+Goyle »

ocman wrote: Thu Dec 15, 2022 11:45 am I just retired (65) and realize I should've started investing about 40 years ago, doh!

I have a small pension and collecting social security. I have no assets other than savings account and no debt.

Does it make sense to open a Roth IRA especially since I won't be able to contribute after this year unless I get a job?

Thanks,
Jerry
It might eventually save you $100 a year compared to investing, if that is worth the hassle, paperwork, and minimal maintenance.
If you have no 401(k), no IRA, it sounds like any qualified dividends or long term capital gains would not be taxed,
but you do not even have that source of income. If your income tax bracket will go down next year, then the classic
answer would be to invest in a tax-deductible IRA this year, save some on taxes, and see next year if it is worth converting it to a Roth.
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

celia wrote: Fri Dec 16, 2022 4:06 amAnd if you get any money in the Roth this year, the 5-year clock will be considered as starting last January. So if you have a big emergency in 4 years and 1 month, you will be eligible to take tax-free distributions at that time.

(Technically, the contributions will be available for withdrawals at any time as tax-free but the growth can’t be withdrawn tax-free until the 5 year clock is over.)
Ok great, good to know...
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Re: Roth IRA after retirement?

Post by CyclingDuo »

ocman wrote: Thu Dec 15, 2022 5:23 pm
chinchin wrote: Thu Dec 15, 2022 12:50 pm Edit: On second thought I don't see anything to lose, so might as well do it.
I could always get a part time job to earn a little extra money and be able to contribute to a Roth IRA.
Not a bad option if you have the desire to bring in some income, and then sock some of it away in the Roth IRA. :beer

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Re: Roth IRA after retirement?

Post by enad »

ocman wrote: Thu Dec 15, 2022 11:45 am I just retired (65) and realize I should've started investing about 40 years ago, doh!

I have a small pension and collecting social security. I have no assets other than savings account and no debt.

Does it make sense to open a Roth IRA especially since I won't be able to contribute after this year unless I get a job?

Thanks,
Jerry
You have to have "earned" income to open up a Roth IRA
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

I worked until August of this year.
1year23
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Re: Roth IRA after retirement?

Post by 1year23 »

Do you have to have earned income to open a Roth IRA for conversions? In other words, NOT contributions.
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FiveK
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Re: Roth IRA after retirement?

Post by FiveK »

1year23 wrote: Fri Dec 16, 2022 7:07 pm Do you have to have earned income to open a Roth IRA for conversions? In other words, NOT contributions.
No. Conversions are not counted as contributions.
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

I appreciate all the helpful replies!

Today I opened a Roth IRA, will need to get a part time job next year if I want to contribute more.

Going to take some time over Christmas & New Years to research mutual funds and ETF's, looking for a 10 year horizon.
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Re: Roth IRA after retirement?

Post by retiredjg »

ocman, you may not be able to contribute directly to Roth IRA if your income this year was high.

https://www.irs.gov/retirement-plans/pl ... e-for-2022
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Re: Roth IRA after retirement?

Post by ocman »

My income was under the limit.
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Re: Roth IRA after retirement?

Post by nedsaid »

ocman wrote: Thu Dec 15, 2022 11:45 am I just retired (65) and realize I should've started investing about 40 years ago, doh!

I have a small pension and collecting social security. I have no assets other than savings account and no debt.

Does it make sense to open a Roth IRA especially since I won't be able to contribute after this year unless I get a job?

Thanks,
Jerry
Hi Jerry:

If you decide to work part-time, you can continue to contribute to a ROTH IRA. Pretty much, no work-ee no ROTH-ee, though you can still make a 2022 contribution until April 18th, 2023.
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

I just opened an Roth IRA with Vanguard for $7,000 and I'm going to add $3,000 to invest in the 3 fund portfolio. Maybe add some Apple stock as +1. Still trying to figure out the percentages.

65 and single, just retired in August, 39 years to the day as a Union Sheet Metal Worker)
Pension/Social Security = 100k per yr (w/supplemental medical plan)
No debt
No assets, other than a savings account (200K, but I want to buy a condo in socal - not sure when that might happen)

Treated for Prostate Cancer 3 years ago (everything is going good so far and I'm in pretty good shape), otherwise I would be planning for at least a 20 year horizon, but you never know.

I might work part time next year so I will be able to contribute to the Roth IRA.

Right now, I'm thinking Apple instead of international stock:
VOO 60
AAPL 20
BND 20

Thoughts?
Last edited by ocman on Thu Jan 05, 2023 7:47 am, edited 1 time in total.
twh
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Re: Roth IRA after retirement?

Post by twh »

ocman wrote: Wed Jan 04, 2023 8:41 pm I just opened an Roth IRA with Vanguard for $7,000 and I'm going to add $3,000 to invest in the 3 fund portfolio. Maybe add some Apple stock as +1. Still trying to figure out the percentages.

65 and single, just retired in August, 39 years to the day as a Union Sheet Metal Worker)
Pension/Social Security = 100k per yr (w/supplemental medical plan)
No debt
No assets, other than a savings account (200K, but I want to buy a condo in socal - not sure when that might happen)

Treated for Prostate Cancer 3 years ago (everything is going good so far and I'm in pretty good shape), otherwise I would be planning for at least a 20 year horizon, but you never know.

I might work part time next year so I will be able to contribute to the Roth IRA.

Right now, I'm thinking Apple instead of international stock:
VOO 60
APPL 20
BND 20

Thoughts?
Owning one single stock that is 20% of your investment does not make sense - diversify.
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Re: Roth IRA after retirement?

Post by retiredjg »

ocman wrote: Wed Jan 04, 2023 8:41 pm Right now, I'm thinking Apple instead of international stock:
VOO 60
APPL 20
BND 20
80% stock and 20% bonds is a young person's allocation. It might be suitable for someone your age with a lot of experience and a large and mostly unneeded portfolio.

But this apparently is your first investment. I suggest holding a minimum of 40% in bonds. And no more than 5% of the portfolio in any individual stock, even Apple.
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Re: Roth IRA after retirement?

Post by ocman »

retiredjg wrote: Thu Jan 05, 2023 6:56 am I suggest holding a minimum of 40% in bonds.
Is the Vanguard Total Market ETF (BND) the right bond?
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Re: Roth IRA after retirement?

Post by retiredjg »

There are many "right" bonds, but that is one that is suggested most often. It is broad (hold lots of different kinds of bonds) and low cost and follows an index rather than being actively managed.
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Re: Roth IRA after retirement?

Post by KingRiggs »

Was the $7,000 contribution for year 2022? Since you worked until August last year, you should have income to cover it.

My concern is the "added $3,000" which would either be:
a) for 2023 or
b) an over-contribution for 2022.

If it's a 2023 contribution, you'll need to have earned income (ie, NOT interest, dividends, etc) of at least $3,000 in 2023.
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ocman
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Re: Roth IRA after retirement?

Post by ocman »

KingRiggs wrote: Thu Jan 05, 2023 8:19 am Was the $7,000 contribution for year 2022? Since you worked until August last year, you should have income to cover it.

My concern is the "added $3,000" which would either be:
Sorry if I wasn't clear, the $3,000 will be in a brokerage account since the $7,000 contribution was for 2022.
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Re: Roth IRA after retirement?

Post by 260chrisb »

exodusNH wrote: Thu Dec 15, 2022 12:15 pm
ocman wrote: Thu Dec 15, 2022 11:45 am I just retired (65) and realize I should've started investing about 40 years ago, doh!

I have a small pension and collecting social security. I have no assets other than savings account and no debt.

Does it make sense to open a Roth IRA especially since I won't be able to contribute after this year unless I get a job?

Thanks,
Jerry
You certainly can. It'll only be $7000; it won't be life changing. If you manage to earn 7% per year for 20 years and never withdraw until then, it'll have a value of about $27,000 in 2042.
$7500.00 over 50 but only on earned income.
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Re: Roth IRA after retirement?

Post by ebeb »

As mentioned above 20% in Apple is bad, max I would go 3% in individual stocks. Also tech industry is having a bad phase now. While VOO and BND are good funds, Going above 50% in VOO after retirement may risk being unable to recover if there is a big market crash. Read up on asset allocation recommendations by age and risk.
65% VOO | 20% BND | 15% TBILL+EF | "You see, in this world there's two kinds of people, my friend: Those with loaded accounts and those who dig" - Blondie(paraphrased)
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Re: Roth IRA after retirement?

Post by ocman »

Ok just so I'm clear, the ETF's go into my Roth IRA and Bonds go into a taxable account?
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Re: Roth IRA after retirement?

Post by ebeb »

No bonds should go in IRA as interest will get taxed otherwise. Stocks should go into taxable. Read up this article https://www.bogleheads.org/wiki/Tax-eff ... _placement
65% VOO | 20% BND | 15% TBILL+EF | "You see, in this world there's two kinds of people, my friend: Those with loaded accounts and those who dig" - Blondie(paraphrased)
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Re: Roth IRA after retirement?

Post by arcticpineapplecorp. »

one other thought. if you work a part time job in 2023 and make $7500 or more, you can also contribute $7500 to a Roth for 2023.

That being said, if you just stopped working and are expecting any payout of vacation/annual time in 2023, that also counts for the purposes of earned income and depending on the amount, you can already contribute that amount (if $7500 or less) to a Roth IRA for 2023.
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Re: Roth IRA after retirement?

Post by ocman »

arcticpineapplecorp. wrote: Thu Jan 12, 2023 9:24 pmThat being said, if you just stopped working and are expecting any payout of vacation/annual time in 2023, that also counts for the purposes of earned income and depending on the amount, you can already contribute that amount (if $7500 or less) to a Roth IRA for 2023.
Great, I will probably get a lump sum payment by March.
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Re: Roth IRA after retirement?

Post by wolf359 »

Is your income high enough to pay income tax this year?
In retirement, with Social Security and small pension, is your income high enough to pay income tax?

The advantage of having even a small Roth is that any earnings will not be taxed. If you have a taxable account, it might be. On the other hand, if your income is low enough, you're probably not getting taxed on capital gains, either.

If you earn money in retirement, you can contribute more to the Roth.

If you build it up large enough, and you have a large expenditure, you can withdraw it from the Roth without any tax penalty. Some people use their Roth for lumpy payments like buying a car.

Your balances and income may be low enough that it might not matter.

Personally, I'd create the Roth account before the opportunity goes away. You always have the ability to open a taxable account. Why not be tax free if you can?
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Re: Roth IRA after retirement?

Post by retiredjg »

ocman wrote: Thu Jan 12, 2023 8:51 pm Ok just so I'm clear, the ETF's go into my Roth IRA and Bonds go into a taxable account?
Apparently you only have a taxable account and a Roth IRA. You have no tax-deferred space to hold your bonds.

In that case it may not matter where you put the bonds if you are in a low tax bracket. Do you have an idea of what your tax bracket will be starting in 2023 and going forward?

Depending on your income, you might want your 2023 IRA contribution to go to a traditional IRA instead of Roth IRA.

Are you familiar with the savers credit?
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Re: Roth IRA after retirement?

Post by ocman »

retiredjg wrote: Fri Jan 13, 2023 7:16 amApparently you only have a taxable account and a Roth IRA. You have no tax-deferred space to hold your bonds.
Correct
retiredjg wrote: Fri Jan 13, 2023 7:16 amDo you have an idea of what your tax bracket will be starting in 2023 and going forward?
I should be in about the 22% tax bracket.
retiredjg wrote: Fri Jan 13, 2023 7:16 amAre you familiar with the savers credit?
No, I'm not.
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Re: Roth IRA after retirement?

Post by retiredjg »

You may not be ready to share more details about your situation yet, but there really is not enough information to work with here.

My assumption is that you are single, your pension is enough to make the full 85% of your SS taxable, and to keep you in the 22% tax bracket. Do you understand how your SS is taxed?

For 2022, Roth IRA (if you use any IRA at all) makes sense unless your income was low enough to deduct a contribution to tIRA.

For 2023, with reduced income, being able to deduct a contribution to tIRA seems likely. If you reduce your taxable income $7k by using tIRA instead of Roth IRA, that might reduce the amount of your SS income that is taxable. And it might make you eligible for the saver's credit on your taxes (although if you are in the 22% bracket, maybe not). The saver's credit is a credit on your taxes for lower income people for having saved for retirement in an account like an IRA.

Using traditional IRA would also give you an optimal place to hold some bonds.

Suggestions of how you should invest are dependent on your specific circumstances, about which we know little. If your savings account is $50k, not investing at all is probably the best idea. If your savings is $500k, you should be investing it and that does not all have to be in an IRA.

Frankly, I'm not sure a tiny Roth IRA makes sense at all for you. If you intend to work a little and contribute to IRA each year, traditional IRA might make more sense. But that depends on the specifics of your pension and your SS.
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Re: Roth IRA after retirement?

Post by ocman »

This was an earlier post I made, viewtopic.php?p=7044136#p7044136

I could open a tIRA and contribute.

As far as my savings really looking into buying a condo.
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retiredjg
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Re: Roth IRA after retirement?

Post by retiredjg »

If there will be little savings after the condo, here is a suggestion.

Leave the 2022 Roth IRA as is and fill it with a stock fund. Know ahead of time that the value of this account may vary a lot with the market. Don't worry about it and don't sell.

Make your 2023 IRA contribution to a traditional IRA, deduct the $7k from your income, invest it in a bond fund such as total bond index.

However, I would question the wisdom of buying a condo if it uses most or all of your savings.
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Re: Roth IRA after retirement?

Post by ocman »

retiredjg wrote: Fri Jan 13, 2023 9:35 am However, I would question the wisdom of buying a condo if it uses most or all of your savings.
Probably 60% total.
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Re: Roth IRA after retirement?

Post by ocman »

retiredjg wrote: Fri Jan 13, 2023 8:31 amDo you understand how your SS is taxed?
Counting my income and SS amount, I will be taxed 85% with no state tax on SS.
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Re: Roth IRA after retirement?

Post by EdNorton »

ocman wrote: Thu Dec 15, 2022 5:23 pm
chinchin wrote: Thu Dec 15, 2022 12:50 pm Edit: On second thought I don't see anything to lose, so might as well do it.
I could always get a part time job to earn a little extra money and be able to contribute to a Roth IRA.
If you have low income, you can also get a "savers tax credit", up to $1,000. Might be worth working part-time.
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Re: Roth IRA after retirement?

Post by JD101 »

twh wrote: Thu Dec 15, 2022 12:28 pm
Considering you will no longer have earned income...
If you have an IRA you should open a Roth IRA and then convert at least $100 now.
If you don't have an IRA, you don't need to open the Roth.
The idea behind opening a Roth would be for any conversion from tIRA to Roth and getting the 5 year clock on first opening a Roth.
Does the year clock work like that? or they are going to look at first in first out. Meaning when the funds went into Roth and then 5 years from there. Otherwise this would be one of things to do for everyone, anyone who have IRA are eligible to rollover to Roth. That way at least the 5 year clock is out of the way.

If you rollover 100 bucks today, they will be completing 5 yrs in say 2028.
If you add 1000 bucks in 2025, then those 1000 bucks will complete 5 yrs in 2030. and not in 2028.
Last edited by JD101 on Fri Jan 13, 2023 9:54 pm, edited 1 time in total.
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Katietsu
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Re: Roth IRA after retirement?

Post by Katietsu »

FiveK wrote: Fri Dec 16, 2022 12:38 am [quote=ocman post_id=7009023 time=<a href="tel:1671126336">1671126336</a> user_id=190172]
I have a small pension and collecting social security. I have no assets other than savings account and no debt.
Depending on your definition of "small" and "how much?" social security, you may have a very low tax rate in retirement. If so, contributing to a traditional IRA this year instead of Roth might be best for you in the long run.

[/quote]

I think there is some confusion in the responses because OP seems to have an annual income of $100k, 22% tax bracket, savings of $200k and good health coverage. Many of us would not call that income small.
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FiveK
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Re: Roth IRA after retirement?

Post by FiveK »

Katietsu wrote: Fri Jan 13, 2023 9:31 pm
FiveK wrote: Fri Dec 16, 2022 12:38 am
ocman wrote: Thu Dec 15, 2022 11:45 am I have a small pension and collecting social security. I have no assets other than savings account and no debt.
Depending on your definition of "small" and "how much?" social security, you may have a very low tax rate in retirement. If so, contributing to a traditional IRA this year instead of Roth might be best for you in the long run.

See the first few sections of the Traditional versus Roth wiki article for more.

It won't make a huge difference either way, but you have to pick one so expending a little thought about it may be worthwhile. Good luck!
I think there is some confusion in the responses because OP seems to have an annual income of $100k, 22% tax bracket, savings of $200k and good health coverage. Many of us would not call that income small.
Indeed. Facts do matter, and many answers to traditional vs. Roth should start with "it depends..." or words to that effect.
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