Making Roth Contributions in or near Retirement

[Echard]

While I am in retirement, we still have some elgible income from businesses and my wife's W-2 job. I don't see any downside to maxing out our Roth contributions of $8,000 each every year we are still elgible. Is there something I'm missing? We really don't want to contribute any more to pre-tax IRA accounts. We are looking at Roth conversions for 2024 and beyond as well.

 

[qwerty3656]

I think contributing/converting to Roth is a great idea. The only reason I can think of not to is if you are trying to keep your income lower for things like ACA insurance, IRMAA, etc.

 

[TheWizard]

If you have earned income, Roth contributions are the way to go...

 

[Sunset]

I did it.
It certainly makes more sense to contribute to the Roth compared to putting the $ into a regular account. Both cases pay the same tax, but the Roth will grow tax free.

 

[disneysteve]

I retired last year. We still maxed our Roths and will continue to do so as long as we have qualifying income from my side gig.

 

[Bryan Barnfellow]

One downside of moving out of the US is that you may encounter what I have here: Switzerland does not recognize the tax benefits of 403(b)s, 401(k)s, and Roth IRAs. Distributions from these are all taxed as regular income. I will be feeling that in 2 more years.

-BB

 

[Ian S]

One downside of moving out of the US is that you may encounter what I have here: Switzerland does not recognize the tax benefits of 403(b)s, 401(k)s, and Roth IRAs. Distributions from these are all taxed as regular income. I will be feeling that in 2 more years.

-BB

Aren't distributions from 403(b)s and 401(k)s taxed as regular income in the USA? Granted, Roth distributions would be exempt in the USA but it's certainly one thing to investigate before moving to another country. For example, in the event we were to move to Canada, I believe, with the proper paperwork, the Roth can be kept tax-free. I suppose an alternative would be to collapse the Roth before moving out of the country.

 

[Bryan Barnfellow]

Re: the Roth. Not in Switzerland; but yes, maybe some room to maneuver in other countries. As always, it pays to investigate ahead of any decision.

I included the other retirement plans just for completeness. There is no difference when taking distros, but perhaps during contribution years if you are being paid by your US-based company while on a sojourn in a branch in another country? Not my area of expertise.

-BB

 

[Sunset]

One downside of moving out of the US is that you may encounter what I have here: Switzerland does not recognize the tax benefits of 403(b)s, 401(k)s, and Roth IRAs. Distributions from these are all taxed as regular income. I will be feeling that in 2 more years.

-BB

Have you investigated if there is a tax treaty between US and Switzerland, as the tax treaty will over-ride many tax rules and beliefs that people hold.

 

[Echard]

I think contributing/converting to Roth is a great idea. The only reason I can think of not to is if you are trying to keep your income lower for things like ACA insurance, IRMAA, etc.

Thank you everyone for your input. This response in particular highlighted something I had not thought about. I'm not on ACA today but will be in two years, and in 3 will be approaching the 2 year IRMAA period. At that point, doing a pre-tax IRA contribution instead of a post-tax Roth contribution might make sense.

 

[Bryan Barnfellow]

Have you investigated if there is a tax treaty between US and Switzerland, as the tax treaty will over-ride many tax rules and beliefs that people hold.

Yes, there is a tax treaty and in that Switzerland retains primary right to tax most types of income. That said, this treaty contains, as do all US-other country bilateral tax treaties, an "escape clause" that allows the US to over ride any of the agreed provisions.

One saving grace is that until you start taking distributions from any retirement plan, those assets are excluded from the calculations for the Swiss wealth tax (which taxes you annually on the value of your financial assets and others, such as automobiles, art, collectibles, etc.). I pay tax at the federal, canton, and communal (town/city) levels, plus a separate wealth tax. Since there is double taxation with the US, I can use foreign tax credits to offset US taxes on income that Switzerland taxes me on. It helps, but since the Swiss tax rates are lower than those in the US, it doesn't always fully offset. :-(

 

[Koolau]

I consider Roths the best "gift" the gummint ever gave us. I always stuck every dollar I could into my Roth - and converted all my tIRAs to Roths between FIRE and SS.

I "toyed" with the idea of finding a "j*b" after FIRE with the only reason being to fund a Roth. I couldn't find anything of interest that would pay enough to be worth my time but funding a Roth did seem like a potential deal maker. That's how sold on Roths I am but YMMV.

 

[old medic]

Absolutely not. If you have the money to save/invest then put it away. This is the last year for us to make Roth contributions. May do some conversions towards the end of the year, but planning on moving everything into Roth by conversions between her retiring and starting SS.

 

[rkser]

We are keeping some in the IRAs for tax deductions in case for large medical bills not covered by medicare in advanced age.
The unused money in the Roths will be a nice inheritance to our children.

 

[PappaChris]

Thank you everyone for your input. This response in particular highlighted something I had not thought about. I'm not on ACA today but will be in two years, and in 3 will be approaching the 2 year IRMAA period. At that point, doing a pre-tax IRA contribution instead of a post-tax Roth contribution might make sense.

When you move to ACA look for a High Deductible Plan (HPD) and fund your HSA and fund your ROTH. This is what my wife and I did for a number of years.

 

[jsncpa]

I converted from being a firm parter to a W-2 employee for 2025 while I wrap up some loose ends in this, my final year. I'll have about $20k dribbling in over the first 3-4 months and the first $8k is straight to Roth.

 

[WWDog]

I don't know if you can still do this but I waited till I retired and was getting less income to do a back door ROTH conversion. You still pay taxes on the money you convert (probably in a lower tax bracket since you are not drawing a salary) but once in the ROTH it is tax free from then on. To minimize taxes you convert up to the next tax bracket. Do this over a few years to convert all your IRAs to minimize the tax you pay on the conversions. I timed it to have all my conversions done before I started drawing SS. One thing to note is that the Roth IRA can be only in your name. Not in you and your spouses name. Your spouse can also have a ROTH in hi/her name. ymmv

 

[Koolau]

I don't know if you can still do this but I waited till I retired and was getting less income to do a back door ROTH conversion. You still pay taxes on the money you convert (probably in a lower tax bracket since you are not drawing a salary) but once in the ROTH it is tax free from then on. To minimize taxes you convert up to the next tax bracket. Do this over a few years to convert all your IRAs to minimize the tax you pay on the conversions. I timed it to have all my conversions done before I started drawing SS. One thing to note is that the Roth IRA can be only in your name. Not in you and your spouses name. Your spouse can also have a ROTH in hi/her name. ymmv

This is what many, if not most of us here have done. Conversion when other income is low really limits the tax hit. Do it before SS or Pension if possible.

 

[orbops]

When you move to ACA look for a High Deductible Plan (HPD) and fund your HSA and fund your ROTH. This is what my wife and I did for a number of years.

The only caveat is if you get a HDHP from the ACA, keep in mind that if you have an unexpected medical emergency, make sure that the max out of pocket is something you don't mind paying out of pocket. In my case, had the HDHP plan for my wife and I, contributed to HSA and was able to deduct all contributions. Then mid-year I ended up having a quadruple bypass, and then had my gallbladder removed (for free since I maxed out from the heart surgery). Paying $15K out of pocket and deducting almost 10K from AGI vs. $6K if I had an ACA silver plan with no deductions to AGI. Since then, I've decided it's not worth it to have a HDHP and to forego any AGI reduction.

 

[eyenitnoy]

While I am in retirement, we still have some elgible income from businesses and my wife's W-2 job. I don't see any downside to maxing out our Roth contributions of $8,000 each every year we are still elgible. Is there something I'm missing? We really don't want to contribute any more to pre-tax IRA accounts. We are looking at Roth conversions for 2024 and beyond as well.

Hi Echard:

I think it is important to put as much as you can into the Roth. First, of course, is the tax free growth. But another often overlooked benefit is the legal protection against lawsuits/creditors money inside these accounts enjoy. If you are ever sued, this money is protected, although the protection varies based on state law. Still, it is much more protected against lawsuits or creditor judgments than money in a retail account would be.

Indeed, one reason for keeping money in 401(k)'s instead of rolling it into IRA's or Roths is the superior protection afforded by the federal protections for monies inside these accounts.

Don't overlook this added benefit of money inside a Roth.

 

[ncbill]

The only caveat is if you get a HDHP from the ACA, keep in mind that if you have an unexpected medical emergency, make sure that the max out of pocket is something you don't mind paying out of pocket. In my case, had the HDHP plan for my wife and I, contributed to HSA and was able to deduct all contributions. Then mid-year I ended up having a quadruple bypass, and then had my gallbladder removed (for free since I maxed out from the heart surgery). Paying $15K out of pocket and deducting almost 10K from AGI vs. $6K if I had an ACA silver plan with no deductions to AGI. Since then, I've decided it's not worth it to have a HDHP and to forego any AGI reduction.

Are you including premiums?

Maximum individual OOP for an HDHP plan on the ACA was $8,050 in 2024.

I hit my maximum ($6,000) individual OOP last year on an employer HDHP.

 

[Rothman]

As my name implies, I like the Roth idea. I understand this is income already so no choice on controling income levels apply. Congrats on being in a good place with a great strategy!

 

[jazz4cash]

Many of the comments relate Roth conversions but OP is asking about contributions. Not the same thing. I expect to be in the same tax bracket in retirement so conversions don’t really make sense but a healthy Roth balance is good for income smoothing and tax diversification. With all the focus on conversions I am surprised contributions are not mentioned more often. Maybe due to the low contribution and income limits it may not seem worthwhile. My strategy is contribute 1st then convert.

 

[TheWizard]

Many of the comments relate Roth conversions but OP is asking about contributions. Not the same thing. I expect to be in the same tax bracket in retirement so conversions don’t really make sense but a healthy Roth balance is good for income smoothing and tax diversification. With all the focus on conversions I am surprised contributions are not mentioned more often. Maybe due to the low contribution and income limits it may not seem worthwhile. My strategy is contribute 1st then convert.

One needs Earned Income to CONTRIBUTE to a Roth IRA and that's something that most fully retired folks don't have...

 

[Gumby]

I know some clever guy is going to think "why don't I employ my wife to be my housekeeper and cook, and she can employ me to be her mechanic and gardener (or vice versa)? Then we could contribute our pay to our Roth IRAs." Actually too clever by half, because you'll have to each pay income tax on that income, and if it's more than $400, you'll also have to pay the Social Security and Medicare taxes - both halves (employer and employee).