Author Topic: Open a new IRA for recent retiree?  (Read 778 times)

renata ricotta

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Open a new IRA for recent retiree?
« on: August 31, 2020, 01:29:05 PM »
As discussed here, my dad (63) recently retired due to COVID and I'm helping him manage his retirement.

His pension is currently covering his expenses. There's not a ton of room, but he has a savings account of about $30k to cover any shortfalls, and I'm a backstop as well. The plan is for him to add social security at age 66.6 (which will more than double his monthly income) and avoid drawing from his 401(k) for as long as possible, likely after my mom retires in 10 years (it's a Roth so RMDs aren't an issue).

My question is whether I should advise him to open an IRA and fund it to the max with $7,000 he currently has in cash. He has earned income this year from before he retired (and even if he didn't, my mom is working and they file jointly). Basically, it would move $7k from the "now/cash" bucket into the "later/invested" 401(k) bucket. Upsides would be getting more in the market, and tax savings. Downsides would be less liquidity, but if he needs more cash for an unexpected expense I could always cover it.


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Re: Open a new IRA for recent retiree?
« Reply #1 on: August 31, 2020, 11:46:49 PM »
Since it sounds like if anything their income will go up when he starts drawing social security I would put it in Roth. He can withdraw contributions at any time. If this is his first Roth then he'll need to wait 5 years before withdrawing gains without penalty, but if he already has a 5 year old Roth IRA he can withdraw gains without penalty since he's over 59.5 years old. If he needs some of this money as an emergency fund he could open the IRA at a bank like Ally with "high" interest and not actually invest it.


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Re: Open a new IRA for recent retiree?
« Reply #2 on: September 01, 2020, 12:35:33 PM »
Agreed--tax deferral is for when you expect your future tax rate to be lower than your current rate.  Roth is a good option, since he's past the age limit.  Taxable accounts may also be a good choice, since it looks like his income is going to be low enough even after he takes SS that he won't hit the higher tax brackets.


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