The Advantages of Starting a Roth IRA After 70

by Mark Kennan

After turning 70 1/2 years old, you cannot continue to contribute to a traditional IRA. Roth IRAs, on the other hand, have no such age limits. Depending on your financial circumstances, starting a Roth IRA after age 70 may have financial advantages for both you any your beneficiaries.

No Required Distributions

Tradition IRAs require that you start taking money out in the year you turn 70 1/2, but Roth IRA never require you to remove money from the account as long as you live. This allows you to continue reaping the benefits of tax-sheltered growth until you need to withdraw the money. If you had a traditional IRA, you would have to start taking money out even if you did not need it.

Tax-Free Distributions for Beneficiaries

If you contribute money to a Roth IRA, you can leave the money in the account to your heirs and allow them to take the money out of the account without them having to worry about income taxes on the withdrawals. However, if you plan to leave your wealth to a charity, you are better off leaving the money in a tax-deferred account because the charity would not have to pay income taxes on the distributions anyway.

Still Need Compensation

Just because you are over age 70 does not exempt you from the basic eligibility requirements to contribute to a Roth IRA. First, your modified adjusted gross income must still fall below the annual limits, as reported by the IRS in Publication 590. Second, you must have earned compensation for the year, such as wages or self-employment income. Compensation does not include Social Security, other retirement accounts, investment income or dividends, so unless you are still working, you cannot make a Roth IRA contribution.

No Rolling Over Required Distributions

If you have a traditional IRA, you must start taking money out of the account in the year you turn 70 1/2 years old. The amount that you must take out to satisfy your minimum required distributions cannot be rolled over into a Roth IRA, or it will not count as the minimum required distribution. However, you can roll over the remainder of your traditional IRA at any time and you will not have to take any further required distributions from the account.

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