Author Topic: Should my 58yr old mom open a Roth?  (Read 1539 times)

Bootlip

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Should my 58yr old mom open a Roth?
« on: December 28, 2016, 11:42:41 AM »
My mom recently sold her house and has $30,000 in a regular savings account. She is 58yrs old, retired, and has a pension that supplies her with a little more money then she needs to live. So I recommended putting some of it in a Vanguard Roth IRA.
 
My reasoning being...
1. She is close to 59 1/2 and would not be penalized on a withdrawal if she ends up needing $.
2. It will most likely provide her with a better return then leaving it where it's at.
3. She can withdrawal her contributions in an emergency.

My question is, am I missing anything? Or does anyone have any better recommendations on where she should park this money?

Thanks!

oldmannickels

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Re: Should my 58yr old mom open a Roth?
« Reply #1 on: December 28, 2016, 12:44:44 PM »
 You didn't mention that she had earned income for 2016. If she doesn't have earned income then she can't contribute to a Roth.

Bootlip

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Re: Should my 58yr old mom open a Roth?
« Reply #2 on: December 28, 2016, 02:04:03 PM »
Thank you for the reply! I do not believe she worked at all in 2016. Would working part time be enough to to qualify? Also do you have a recommendation for a place to park this money if she chooses not to work at all?

SeattleCPA

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Re: Should my 58yr old mom open a Roth?
« Reply #3 on: December 28, 2016, 02:25:35 PM »
Your mom probably pays a 0% tax rate on dividends and long-term capital gains... so actually a Roth-IRA probably creates no value for her.

AlmstRtrd

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Re: Should my 58yr old mom open a Roth?
« Reply #4 on: December 28, 2016, 06:30:18 PM »
Would working part time be enough to to qualify? Also do you have a recommendation for a place to park this money if she chooses not to work at all?

She could contribute to a Roth up to the amount she earned in 2016. For example, if she had earned income of $2,000 from part-time work, she would be able to put up to $2,000 in a Roth account for 2016. But, as Seattle CPA has already pointed out, she likely gets no tax advantages from having money in a Roth account.

It sounds like it's best for you to just put that $30,000 in a regular taxable account with whatever asset mix she is comfortable with.

Note that you haven't really said if she has other assets so take any advice here as the best we can do with the information you have provided.

VoteCthulu

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Re: Should my 58yr old mom open a Roth?
« Reply #5 on: December 30, 2016, 09:28:50 AM »
One benefit of a Roth is it would allow her to invest in bonds tax free, if she wanted to.

With the pension covering expenses, I would probably just put it all in a taxable account in a broad US stock index fund like VTSAX.

ChpBstrd

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Re: Should my 58yr old mom open a Roth?
« Reply #6 on: December 30, 2016, 02:40:17 PM »
I think she should set up the Roth, to the extent possible within the earned income limitation. It's a simple matter of not generating potentially taxable income every single year.

I'm not sure if there is a tax-deferred account type she could set up and contribute "unearned" income. Any ideas?

If she has to go with a taxable account, look for a set-it-and-forget-it growth index fund or stocks that don't pay dividends.  That way, its value can grow without flinging out potentially taxable earnings. If she needs cash flow, she can sell and incur taxes at the time of her choosing.

The only other trick I can think of would be to use the money as a down payment on a rental property. Then, use all your rent "profits" to improve - er... maintain - the property each year, so net income is near zero, even though your asset has appreciated. Finally, move into the property for a couple years, and then sell it for a tax-free profit. That's probably too complicated, LOL!