Over 59 1/2? You Must Know these Roth IRA and 401K Answers
My wife is a self-employed Dental Hygienist who does fill-in work for Dentists, so has no Employer sponsored IRA or 401K since leaving her permanent employer in 2015.
Am I correct to assume that we can open her a Roth IRA funded with after-tax contributions until April 15th, 2017 for the year 2016 as well as make an additional contribution this year, 2017? She is over 59 1/2, so she can contribute $6,500 for both the 2016 and 2017 contributions and any gains, dividends from the Roth is tax exempt? And, further, since she is over 59 1/2, how does the five year waiting period affect any withdrawals she could make?
Also, on the same topic, I am 63 years old, I max out my Company’s 401-K and my company offers a pension which I am vested in. I am not contributing to an IRA, since a traditional doesn’t do me much good as far as contributions being tax-exempt, could I as well contribute to a Roth IRA up to the $6,500 max for both 2016 and 2017? And does the 5 year waiting period apply or could I withdraw from the Roth at any time with no penalty due to my age?
Thanks for your comments. – Darryl
Wow! There’s a lot going on there! Let me try to break apart your question into a few answers to try and simplify things.
1) If your wife is self-employed, then you can use her net profits to contribute to an Roth IRA (if she doesn’t have net profits she may be eligible for a spousal contribution using your earnings), provided your total MAGI is below the applicable threshold for each respective year. If she has a substantial profit from her business, you could look at other options as well, such as creating her own retirement plan, like a SEP IRA or solo-401(k).
2) Since your wife was 50 or older by the end of both 2016 and 2017, she may contribute up to $6,500 to a Roth IRA for each year (again, provided you meet the income requirements)
3) Your wife could withdraw her contributions to her Roth IRA at any time tax and penalty free. The earnings are a bit more complicated though. Assuming your wife has no existing Roth IRA money before she makes her 2016 contribution, she will have to wait 5 years to be able to distribute earnings from the Roth IRA tax-free (but they would always be penalty-free). The good news though, is that if she makes a 2016 Roth contribution, her 5-year clock will start January 1, 2016, so it will effectively be a 4-year clock.
4) Your participation in your company’s 401(k) and pension, and any contribution that your wife would make to a retirement account has no impact on your ability to contribute to a Roth IRA. Provided you meet the income restrictions, you can contribute.
5) Assuming you’ve never had a Roth IRA before, the taxation of any Roth distributions you take would be the same as outlined above for your wife. Contributions to your Roth IRA can come out at any time tax and penalty free. will have to wait 5 years to be tax-free (but they will always be penalty-free). And if you make a 2016 Roth contribution, your 5-year clock will start January 1, 2016, so it will effectively be a 4-year clock.