Too Old for a Roth?

[Randy757]

Hello Everyone!

I am new here, my first post. I have a had a running discussion with my wife about whether I/we are too old to have a Roth. Current age is 62, wife is the same age, ( yeah we are starting late, long story) but I maintain that we may live old enough to have this work as a tax free account for emergencies in retirement. (Wife will retire at 66, I am waiting until 71)

Here is the question: does anyone have any guidance or references about when it is not advisable to start a Roth relative to time? I realize it makes a lot of sense for young people, but as we get older there has to be some correlation for returns versus age. Any suggestions where I can look?

Many Thanks for your input!

Randy757

 

[alevin]

Hi Randy, lot of unknowns about your situation that could affect the answer.

For me, I have emergency fund, max out tax-deferred tsp and manage to save enough these days to also at least partially fund an outside Roth account each year, which I've been doing for a few years. I paid off a 6+% mortgage interest rate early about 10 years ago by paying extra principal while only putting into tsp enough to get the matching while I was doing that. only reason I have extra savings now to put into Roth. I am a year younger than you, started the roth a handful of years earlier, it adds up slowly but surely. I intend to keep working at something til around 70 and putting what I can into Roth as long as I can.

Having a Roth account that builds up gives future flexibility. think of it as an emergency fund if needed (contributions only, not the earnings, at least for the first 5 years), but a way to also manage taxes by having a portion of future withdrawals taxfree if/when needed (from earnings and contributions both, after account in place for 5 years). and no required timeline for withdrawals, keep it growing as long as you like, or until needed.

 

[uscfanhawaii]

Hello Everyone!

I am new here, my first post. I have a had a running discussion with my wife about whether I/we are too old to have a Roth. Current age is 62, wife is the same age, ( yeah we are starting late, long story) but I maintain that we may live old enough to have this work as a tax free account for emergencies in retirement. (Wife will retire at 66, I am waiting until 71)

Here is the question: does anyone have any guidance or references about when it is not advisable to start a Roth relative to time? I realize it makes a lot of sense for young people, but as we get older there has to be some correlation for returns versus age. Any suggestions where I can look?

Many Thanks for your input!

Randy757

Age itself should not be a factor. See the extensive posts on Roth vs Traditional to see the plusses and minuses.

As Alevin says, a big consideration is 'tax diversification' to allow you to pay taxes when low and NOT pay taxes when they are high. That is not an easy decision because who knows what taxes will do in the future. Best bet is to keep your options open!

By the way, I (like Alevin) keep all my TSP traditional. I fund an outside Roth IRA. I am 63, and will be retiring this year.
There are some changes coming to the TSP based on the law that was passed last year, but until they let us keep Roth and Traditional totally separate (including allocation % and withdrawals) I like having my Roth outside.

 

[evilanne]

You are not too old, many people wait until they are retired and then convert traditional retirement funds to Roth when their tax rate is lower for many of the same reasons already stated; but I would recommend that you do it sooner rather than later. See https://www.rothira.com/blog/the-five-year-rule-with-roth-ira-withdrawals If your AGI <$189K for Married filing Jointly you can actually open & contribute to an outside Roth for 2017 for you and your wife until tax filing deadline in April, which will shorten your 5 year period.

Other advantages of Roth:

No Required Minimum Distributions at age 70.5

If something happens to you or your wife, the surviving spouse is likely to have higher tax rate due to smaller/lower tax bracket for single filers.

Spouse can treat as their own account with same tax advantages when other one dies. Balance in Roth (contributions & earnings) is not taxable to a non-spouse heir (Earnings after date of death are taxable).

 

[Randy757]

Guys I really do appreciate your input! My wife is still concerned about taxes, so here is another question that relates to this issue: are you concerned that taxes will increase in the future? Are you also concerned that our Social Security will be reduced in amounts as the deficit continues to grow?

I am NOT trying to get political here, we are talking money. I just want us to be comfortable in retirement.

All the best to everyone!

Randy

 

[userque]

Guys I really do appreciate your input! My wife is still concerned about taxes, so here is another question that relates to this issue: are you concerned that taxes will increase in the future? Are you also concerned that our Social Security will be reduced in amounts as the deficit continues to grow?

I am NOT trying to get political here, we are talking money. I just want us to be comfortable in retirement.

All the best to everyone!

Randy

Many of the new tax cuts are temporary. IOW, 'taxes going up' was baked into the equation (except for corporations).

https://www.google.com/search?q=tax...ome..69i57.20010j0j7&sourceid=chrome&ie=UTF-8

 

[nnuut]

ALL Taxes ARE TEMPORARY until they are not.

 

[userque]

ALL Taxes ARE TEMPORARY until they are not.

That's obviously true. But in this case, THESE tax CUTS were temporary FROM THE START.

 

[nnuut]

There is no other way to do it. it's a LAW. If you don't know that you shouldn't be commenting.
CLOSE THIS THREAD!

 

[evilanne]

Based on the recent legislation, taxes will increase around 2026 unless they extend lower rates or pass other legislation between now and then. If your RoR increases, your taxable income will increase that will result in higher taxes. I don't know what whether SS will be there at all in the future. It is possible that it could be reduced or they could pass new legislation that could increase or decrease future taxes. I do think they do need to address entitlements if they are ever going to straighten the underlying issues.

 

[Randy757]

Agreed. Kiplinger's has some interesting information regarding SS, basically stating that there is a possibility that it might drop by 25% in it's payouts. My "potential" planner guy says that if they increase the SS tax by just 1% it will fund it for quite a bit more time.

 

[uscfanhawaii]

Age itself should not be a factor. See the extensive posts on Roth vs Traditional to see the plusses and minuses.

As Alevin says, a big consideration is 'tax diversification' to allow you to pay taxes when low and NOT pay taxes when they are high. That is not an easy decision because who knows what taxes will do in the future. Best bet is to keep your options open!

By the way, I (like Alevin) keep all my TSP traditional. I fund an outside Roth IRA. I am 63, and will be retiring this year.
There are some changes coming to the TSP based on the law that was passed last year, but until they let us keep Roth and Traditional totally separate (including allocation % and withdrawals) I like having my Roth outside.

update from TSP on the FAQs of the new TSP law signed last November:

http://www.narfe.org/pdf/0118_WP_TSP.pdf