Opening Roth IRA & LIfe Insurance After retirement & age 70 1/2
My Husband & I are retired and are 70 1/2. Can we still open Roth IRA and tax free life insurances?
My Husband & I are retired and are 70 1/2. Can we still open Roth IRA and tax free life insurances?
Permalink Submitted by Alan - IRA critic on Tue, 2013-10-29 00:29
If you have earned income, you can contribute to a Roth IRA after 70.5, but not to a traditional IRA. You can also convert a traditional IRA to a Roth IRA after you take your RMD for the year. You cannot convert the RMD amount. Life insurance proceeds are income tax free, but to avoid having the insurance included in your estate for estate taxes, your policy must be owned by an irrevocable life insurance trust (ILIT).
Permalink Submitted by Hans Baetjer on Tue, 2013-10-29 20:06
Thank you. We are retired and no longer working. However we have substantial money from dividence, pension and Social securities. Can they be considred as earned income? Thanks
Permalink Submitted by Alan - IRA critic on Tue, 2013-10-29 20:21
No, those are not considered earned income. You could not make regular contributions to a traditional IRA or Roth IRA.
Permalink Submitted by Hans Baetjer on Tue, 2013-10-29 20:33
What about tax free life insurance? Can we open tax free life insurance? Thanks
Permalink Submitted by Hans Baetjer on Mon, 2013-11-11 20:43
What about tax free life insurance? Can we open tax free life insurance? Thanks
Permalink Submitted by sydney p on Mon, 2013-11-11 20:52
Alan, if you don’t mind me asking, if a distribution is taken from the IRA and taxes are paid…from which the proceeds are used to purchase life insurance, would the death benefit not go to the heirs 100% tax free? Is it still an estate issue? Thanks.
Permalink Submitted by Alan - IRA critic on Mon, 2013-11-11 22:37
Yes, a life insurance beneficiary would not be taxed on the death benefit, only on interest earned after death if the life company continues to hold the policy and pays interest. But the value of the death benefit IS included in the gross estate of the owner of the policy unless the policy is owned by an ILIT (Irrevocable Life Insurance Trust).
Permalink Submitted by sydney p on Tue, 2013-11-12 00:10
Agreed. But, if the individual has total assets far under $5.25 million, then it is is somewhat of a moot point?
Permalink Submitted by Alan - IRA critic on Tue, 2013-11-12 01:30
Depends on the state estate tax situation, but moot for federal purposes.