Roth contribution in an RMD year and with earned income

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neurosphere
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Roth contribution in an RMD year and with earned income

Post by neurosphere »

I suspect this is an easy question. My parents are each over 72 and will have $15,000 in RMDs this year. They also have some earned income, which I suspect is in the $30,000 range between them. Does anything prevent them making Roth IRA contributions? I realize they can't do Roth conversions of the RMD amount, but I'm having a hard time finding a definitive answer on this. I think this is because most of the links I'm coming across focus on conversions of RMDs and don't address the situation where someone over 70.5/72 also has earned income.

I just helped my mom process her RMD for the year and went "hmmm" because they don't necessarily need the RMD for living expenses. I suspect also that any Roth contribution would be available at any time without tax or penalty (as I can't think of any exceptions to this treatment of Roth contributions), so why not put cash in the Roth and invest as appropriate rather than have cash sitting in a checking account?
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sport
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Re: Roth contribution in an RMD year and with earned income

Post by sport »

My understanding is that Roth contributions are allowed as long as there is earned income. Traditional IRA contributions used to be prohibited once RMDs start, but I believe that was changed in one of the recent law changes.
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Eagle33
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Re: Roth contribution in an RMD year and with earned income

Post by Eagle33 »

My understanding is that Roth contributions are allowed as long as there is earned income and their MAGI is is less than the limitation for direct Roth contributions.
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DSInvestor
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Re: Roth contribution in an RMD year and with earned income

Post by DSInvestor »

IRS Pub 590 link to Roth IRA contribution information:

https://www.irs.gov/publications/p590a# ... 1000230980
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dodecahedron
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Re: Roth contribution in an RMD year and with earned income

Post by dodecahedron »

sport wrote: Wed Nov 24, 2021 1:45 pm My understanding is that Roth contributions are allowed as long as there is earned income. Traditional IRA contributions used to be prohibited once RMDs start, but I believe that was changed in one of the recent law changes.
Sport is correct. Roth IRA contributions have never had an age limitation. As long as the taxpayer (or spouse) has earned income and the MAGI is below Roth limits, Roth IRA contributions are permitted.

Tradtional IRA contributions however had a 70 1/2 age limit for tax years 2019 and earlier. Starting in Tax Year 2020, both TIRA and Roth contributions are permitted at any age.

See this IRS page for confirmation.
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celia
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Re: Roth contribution in an RMD year and with earned income

Post by celia »

neurosphere wrote: Wed Nov 24, 2021 1:38 pm I suspect this is an easy question. My parents are each over 72 and will have $15,000 in RMDs this year.
Did you know that RMDs are required from your tIRAs after age 72, but not from employer plans under certain conditions:

https://www.kitces.com/blog/still-worki ... ent-owner/

Even for RMDs that can be further delayed, your parents should consider what their eventual RMDs would be and if it would impact their future tax brackets (by having not only the RMD, but also growth on it staying in the account).
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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