Contribution to IRA after ER

[David1961]

I ERd last year and am considering continuing contributing to my IRA and/or Roth IRA this year. Am wondering what other folks' opinions are on this. I am 51 and will not need my IRA money (including what I would contribute) until I'm at least 60. I have both a traditional IRA and a Roth IRA, although the past five years or so, my income was too high to allow me to contribute to the Roth (so that balance is lower). The idea of having the money accumulate tax-free is appealing, but since my tax rate is much lower this year, I'm wondering if there are better products out there I can take advantage of.

Also, and another related question, is the pros and cons of converting my traditional IRA to a Roth IRA this year. I will have a low tax rate this year and do believe tax rates will be higher 10 years from now than they are now. Seems like a good move - are there things I need to consider?

 

[GrayHare]

You need earned income before you can contribute to an IRA. Roth conversion has been discussed in many threads over the past few years.

 

[karluk]

The idea of having the money accumulate tax-free is appealing, but since my tax rate is much lower this year, I'm wondering if there are better products out there I can take advantage of.

If by "much lower" you mean that you will be in the 15% Federal tax bracket, then the fact that long term capital gains are taxed at 0% for those in the 15% bracket makes it less of a clear-cut win to contribute to a Roth IRA, even if you are eligible to do so. Since your profits on stock investments in taxable accounts won't generate any Federal taxes anyway, it's possible to make a good case for keeping the investments where they are. That way if you discover that you're mistaken and end up needing the funds before turning 59 1/2, you can avoid a possilble early withdrawal penalty.

You may, however, owe state taxes on your profits from a taxable account. You also have to do some planning, such as avoiding wash sale rules when selling from a taxable account and being alert to future chances in the tax laws that might increase your tax burden.

Also, and another related question, is the pros and cons of converting my traditional IRA to a Roth IRA this year. I will have a low tax rate this year and do believe tax rates will be higher 10 years from now than they are now. Seems like a good move - are there things I need to consider?

At the risk of putting words into other peoples' mouths, I think it's fair to say that making gradual Roth conversions of just enough to stay within the 15% tax bracket is wildly popular on this forum. I know that it's part of my own retirement planning, and I would recommend it to anyone whose tax circumstances allow it.

 

[ERhoosier]

You need earned income before you can contribute to an IRA.

+1

Traditional IRA requires earned income (vs dividends, CG's, etc.).

 

[jimnjana]

some disability income counts if it is reported on a W2.

 

[Animorph]

Depending on the size of your tIRA and income needs, you might have a hard time staying inside the 15% tax bracket later on, especially when required minimum distributions start. With low taxes now, contribute to the Roth IRA if you have earned income. Convert some tIRA to Roth IRA to fill up the rest of the 15% bracket. If you expect to have more like 10% tax bracket later, then you may not want to do anything now. You'll have to figure out your future tax levels to know for sure.

 

[Bikerdude]

When I retired at 52 I was living on 'after tax money' and converted my IRA to a Roth up to the 15% limit each year. Roth money has become handy (to reduce taxes) now that I have spent all my 'after tax' $$.

 

[Midpack]

You need earned income before you can contribute to an IRA. Roth conversion has been discussed in many threads over the past few years.

+2. May answer your question, if not...

...I contemplated the same question about a week ago as DW is still working so we could contribute to both our IRAs using her earned income and the spousal IRA provision. Thankfully I was advised by other members to check my RMD's based on how much we already have in (4) IRA's - and we may already have too much, it's close. Of course we can start withdrawing (while staying under the desired tax bracket) before 70 to reduce our RMD. So my question was answered pretty easily, no more IRA contributions for us.

 

[martyb]

You need earned income before you can contribute to an IRA. Roth conversion has been discussed in many threads over the past few years.

Sort of...if your spouse has earned income, you can contribute to your Roth IRA, even if you don't work. At least, that's my understanding, and what I intend to do once I retire sometime this year. Wife will be working, so I plan to max my Roth & hers too. Income limits won't be an issue in our case.

 

[samclem]

Thankfully I was advised by other members to check my RMD's based on how much we already have in (4) IRA's - and we may already have too much, it's close. Of course we can start withdrawing (while staying under the desired tax bracket) before 70 to reduce our RMD. So my question was answered pretty easily, no more IRA contributions for us.

I think we may be in the same boat, and I'm considering 72T withdrawals from the tIRA until we reach 59 1/2 for that reason. They won't be very much,
but it'll help a little in reducing the possible big tax bills later (due to RMDs) and also allow us to reduce withdrawals from our Roth contributions for the next decade (= more tax-free money later).
It's all a bit of a crap shoot given laws can change a lot over the next few decades.

 

[Koolau]

You need earned income before you can contribute to an IRA. Roth conversion has been discussed in many threads over the past few years.

GrayHare is correct that this subject has been discussed a number of times. I usually offer the following site as it's sort of a one-stop-shopping for IRA info (and lots of other related stuff). It may not help you make your decision because you must taylor your situation. But the site should alert you to advantages and pitfalls before you decide. Best of luck, because YMMV.

Guide to Roth IRA, 401k and 403b Retirement Accounts

 

[ronocnikral]

Sort of...if your spouse has earned income, you can contribute to your Roth IRA, even if you don't work. At least, that's my understanding, and what I intend to do once I retire sometime this year. Wife will be working, so I plan to max my Roth & hers too. Income limits won't be an issue in our case.

Correct as well. DW doesn't have earned income, but still contributes to her IRA's.

My offers to switch roles with her are met with laughter.

 

[travelover]

Sort of...if your spouse has earned income, you can contribute to your Roth IRA, even if you don't work. .........

Correct, I've been doing this for 6 years, in my case into a Roth.