Unlike the traditional IRA, which no longer allows contributions after the age of 70, you are never too old to open a Roth IRA. There is no age limit for opening a Roth IRA, but there are income and contribution limits that investors should be aware of before financing one. Let’s take a look at the pros and cons. If you’re not eligible for a Roth IRA due to income limits, some investors choose to make contributions to a traditional IRA and later convert those contributions to a Roth IRA.
If you have a significant amount of money in traditional IRAs, turning some of that money into Roth money not only helps you avoid the required minimum distributions (RMDs), but can also help your heirs keep more of the money you leave them by not having to pay taxes from them on your traditional IRA, which they inherited in their potentially highest-earning years. Unlike a traditional IRA, however, a Roth IRA doesn’t require you to start withdrawing money at a certain age. The distribution rules for a Roth IRA can also help you if you intend to bequeath your IRA to your heirs. However, since there are no income limits for conversions, a common strategy is to make a non-deductible contribution to a traditional IRA and then convert it to a Roth IRA.
If you ask, “Can I open a traditional IRA and a Roth IRA, you might be wondering if you can convert your traditional IRA to a Roth IRA. When you change jobs, you have the option to convert a traditional 401 (k) straight into a Roth IRA without having to convert it to a traditional IRA first. You could hold off because you think there’s an age limit on Roth IRA contributions, but you’re likely to earn more in the later years of your career than in your early years when you might think you should have started your IRA. Even high-income earners who are unable to directly finance a Roth IRA can use this strategy, also known as a backdoor Roth IRA.
A Roth conversion is the process of repositioning your assets in a traditional IRA or a qualified employer-sponsored retirement plan (QRP), such as a 401 (k), 403 (b), or state 457 (b), into a Roth IRA. You can avoid the RMD by transferring a Roth 401 (k) balance to a Roth IRA after you retire but before your RMD age. Call 1-877-493-4727 to discuss the potential benefits of Roth IRAs and Roth IRAs with a Wells Fargo retirement professional.
