Do Baby Boomers Need a Roth IRA?

by Junior Boomer on April 8, 2009

roth-ira-for-baby-boomers

If you’re at all familiar with investing, I am sure you’ve heard of this little thing called the Roth IRA. I am also sure you’ve heard about how great the Roth IRA is and how it’s one of the best investment tools for any young person planning for retirement. But as a baby boomer, does it really make sense for you to open a Roth IRA? As good as tax-free money sounds to your retirement, if retirement is only a few years away, can it really make that much of a difference? Below are a few examples of where a Roth IRA might make sense for you, the baby boomer.  You might also want to know where to get the best Roth IRA rates.  Don’t let that confuse you.

1. You’re not retiring any time soon.

It’s really tricky to figure out from a tax standpoint if a Roth IRA makes sense. If you are a baby boomer but still plan on working 10-plus years until retirement, a Roth IRA still makes sense. It’s important to do some computations to see if the tax-free nature will offset any tax savings that you would have with the traditional IRA . But if you are almost for certain that you are not retiring any time soon, a Roth IRA could definitely be the right move.

2. Pass it on, tax-free.

Starting a Roth IRA  in your later years could also be an effective estate planning tool. By opening a Roth IRA you don’t get a tax deduction, so if you’d ever use the money your beneficiaries will inherit it completely tax-free. In essence you’ve just started a life insurance policy for your kids or grandkids.  Considering that life insurance at a baby boomers age would be rather expensive, this might be an inexpensive way to pass money on to them. In addition to that, you might be also teaching your kids or grandkids the benefits of investing and even better the benefits of a Roth IRA.

3. No forced distributions

One last consideration is the required minimum distributions for Roth IRA’s.  Unlike the traditional IRA counterpart, boomers will not be forced to take distributions at the age of 70 1/2.   And as I stated above, they will be able to pass on the remaining balance completely tax free.   One thing to note is that beneficiaries will still be required to take distributions bases on the benefactors life expectancy.

All in all, a Roth IRA could make definite sense for a baby boomer still planning for their retirement.  Be sure to meet with a tax professional to see if a Roth is appropriate for your situation.

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