Contributing to a Roth after retirement

[Looking4Ward]

Hi everyone, I've been lurking on this forum for a couple of years now and it's been a great help so I thought I'd ask my first question.

I'm 55, DW is 51. I plan on retiring this year, DW will continue to work at the job she enjoys. We maintain separate taxed/tax advantage retirement accounts.

We file taxes jointly, and her annual income is roughly $80K.

My retirement assets are roughly 33% in a 401K and 66% in taxable accounts.

So aside from SS, the brunt of my retirement income will come from a very large amount of savings and my 401K will remain untouched until I reach RD

I can "withdraw" much more than I need each year from my savings until I have to start RD from my 401K.

So my question is - how much, if any of my after-tax dollars from my taxable investment accounts can I invest into a Roth IRA after I have retired?

Is it even possible? Does it make sense to do so?

Thanks for any guidance.

 

[braumeister]

how much, if any of my after-tax dollars from my taxable investment accounts can I invest into a Roth IRA after I have retired?

None. You can only put money from earned income into an IRA.

But you and your wife can both fund them up to your limits based on her earnings.

Look up "spousal IRA" for more detail.

 

[Dash man]

Braumeister is correct. I retired last year and my wife is still working. Based on her income we both funded a traditional IRA and immediately did a conversion to a Roth IRA. But our after tax investments are staying in taxable accounts.

 

[Animorph]

+1 to contributing to a Roth based on DW's earnings.

You may be able to roll over portions of your 401k into a Roth IRA. You definitely can rollover all of your 401k into a traditional IRA and then Roth convert portions of the tIRA. You have to pay taxes on the Roth conversion, so it may be nice to stay within the 15% tax bracket. If you project RMD's will be coming out in the 25% tax bracket, then Roth converting into the 25% tax bracket now may be beneficial. The net effect is moving some of your taxable money (the amount you pay in taxes) into the Roth. This may work even better when DW retires and you income drops again.

 

[Looking4Ward]

I had actually looked up that term and it only confused me more!

So if I withdraw $50k from my savings and DW takes home $60K the same year, we can contribute up to (??) to my Roth IRA? And since they are after-tax dollars, does it really matter where the dollars came from as long as one of us had earned income that year?

 

[Animorph]

Oh yeah, one other thing I just found out for Roth contributions. They are limited if your income is above $188k modified AGI (that's 2013's limit, I haven't memorized 2014's). We've all known that for a long time. But the "modified" part of the AGI includes a subtraction for Roth conversions. So you can Roth convert your AGI above the income limit and still make a normal Roth contribution. We'll be able to do that for 2013 and 2014 I think.

 

[Animorph]

I had actually looked up that term and it only confused me more!

So if I withdraw $50k from my savings and DW takes home $60K the same year, we can contribute up to (??) to my Roth IRA? And since they are after-tax dollars, does it really matter where the dollars came from as long as one of us had earned income that year?

It doesn't matter where the money you contribute comes from. The Roth IRA contribution limits are $6500 per person when you are 50 or over. Your DW may not be able to contribute if she is covered by a pension plan. You plus DW must have enough earned income to equal or exceed the amounts you both contribute.

Roth conversions are not limited, but you may not want the tax hit all at once.

You can do a quick search at www.irs.gov for the exact details.

 

[Dash man]

+1 to contributing to a Roth based on DW's earnings.

You may be able to roll over portions of your 401k into a Roth IRA. You definitely can rollover all of your 401k into a traditional IRA and then Roth convert portions of the tIRA. You have to pay taxes on the Roth conversion, so it may be nice to stay within the 15% tax bracket. If you project RMD's will be coming out in the 25% tax bracket, then Roth converting into the 25% tax bracket now may be beneficial. The net effect is moving some of your taxable money (the amount you pay in taxes) into the Roth. This may work even better when DW retires and you income drops again.

Just a note for if you're considering rolling over your 401k into an IRA. The 401k has some legal protections from lawsuits and bankruptcy that an IRA will not have. If you have a good 401k, I'd suggest you keep it there. If you do choose to move it to an IRA, consider getting an umbrella policy to cover liability up to your net worth. Your insurance company should offer them.

 

[Corporateburnout]

Just a note for if you're considering rolling over your 401k into an IRA. The 401k has some legal protections from lawsuits and bankruptcy that an IRA will not have. If you have a good 401k, I'd suggest you keep it there. If you do choose to move it to an IRA, consider getting an umbrella policy to cover liability up to your net worth. Your insurance company should offer them.

Depends on state laws. In MA where I live IRAs are protected up to one million dollars from creditors and liability lawsuits.

 

[kaneohe]

Depends on state laws. In MA where I live IRAs are protected up to one million dollars from creditors and liability lawsuits.

Do you know if you have to file for bankruptcy to get this protection?

 

[Dash man]

Do you know if you have to file for bankruptcy to get this protection?

You'll need to check your state laws on that one.