Are you retired? If so, you may think that a Roth IRA is not for you. You may think that Roth IRAs are for younger people. Before deciding that a Roth IRA will not benefit you as a retiree, here are 10 facts that you will want to know.
1. If you are still working, you can still make contributions to your Roth IRA. There are no age limits for Roth IRA contributions but there are income limits that are indexed each year for inflation. Go to www.IRAhelp.com/2015 to find the limits for the current year.
2. You are not required to have earned income to convert your traditional IRA to a Roth IRA. You can still convert when you are retired.
3. Factors favoring converting for retirees include: having nonretirement account funds to pay the taxes, not needing the converted money for immediate living expenses, and a willingness to pay taxes on the IRA funds so beneficiaries won’t have to pay them in the future.
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4. You must take your RMD for the year before converting any or all of the remaining amount of your traditional IRA. Your RMD is not eligible to be converted but once the conversion is done you will never need to take an RMD again because Roth IRA owners are not required to take RMDs during their lifetime.
5. Converting to a Roth IRA will increase your income for the year of the conversion. This may impact deductions, credits, exemptions, phase-outs, AMT, the taxation of your Social Security benefits and Medicare Part B and Part D premiums; in other words, anything on your tax return impacted by an increase in your income. Those Medicare premiums are generally based on your income from two years prior, so you may not see the full cost of the conversion show up for several years.
6. Your Roth IRA contributions can always be distributed without tax or penalty. There is no waiting period.