PODCAST 76: What Can I Do with My Roth IRA After Five Years?

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Below is a transcription of the Ask Gregory Podcast 76 – What Can I Do with my Roth IRA After Five Years?

Hey welcome. I’m your host Gregory Rick’s a financial advisor here to answer your questions and help you win with your money.

On today’s episode of the Ask Gregory Podcast, we’re gonna answer the question, What can I do with my Roth IRA account after five years? Joining us for this episode are Jude Heath CPA of Jude Heath and Co. as well as Brandon Bergeron a wealth advisor here at Gregory Ricks & Associates. Also, we have a complimentary download waiting for you on this topic. If you go to gregoryricks.com/podcast76. Again, that is gregoryricks.com/podcast76.

So let’s jump to the callers here we have Gary from Waveland on our winning at life hotline. Welcome to the show, Gary, how can we help you

So, I have some Roth IRA and HSA questions for Jude are intertwined with taxes.

Okay, go ahead which one you got first?

Well, the first question on the Roth IRA is all you really hear and read is that you contribute for five years and then after five years, you can take out any earnings tax-free, but you never hear what happens beyond the five years. In other words, can you continue to contribute to it? If so, what are the standard IRS limits? Are there different limits? How does it work beyond five?
I’ll start off with that. And then I’ll let Jude jump in. But here’s here’s the one key point on creating a Roth account is getting an account opened and make a contribution to that account, whether it’s $50, or your max for the year, depending upon your age, which would be $6,000, for under 50, 50 and over up to $7,000 on a contribution. But what you’ve done by opening it and making the contribution opening the account doesn’t get it done, it’s when you make a contribution, you start a five-year clock, which means once that clock has hit five years, it doesn’t matter how long other money is put in because it falls under their original five year clock. So you don’t have to leave future money in there for five years for the growth from it to come out tax-free. But here, here’s a couple parts to that you get you get you’ve got to get out age 59 and a half for it to come out now, once again, on contributions or after our after-tax contributions. So those actually can come out any time along the way. But those the earnings for them to go tax-free, you have to have had that account set up for five years, and you have to take it out after 59 and a half. Did I miss anything there Jude?

No that’s right. And I guess what I’m what I’m hearing in your question is, after the five years, can you still contribute? And can you still use that Roth? And the answer, of course is yes. Subject to your income limits and the other limits placed on Roth contributions. But yeah, if people think that a Roth IRA is a five year decision, it’s not it’s a lot part should be part of your life, retirement investing decisions, part of your strategy, you know, if it’s available to you,

What do you think Gary?

I’m sorry, what I understood previously was your contributions can be taken out any time. But the earnings cannot, you know, subject to taxes if you’re not at least 59 and a half. And I haven’t been in for at least five years. But my question is, would there be any reason to have more than one Roth IRA established other than setting one up for beneficiaries? Would there be any other reason to have one? Or more than one rather?

Brandon, is there a reason to have more than one right? I don’t see any one Roth unless you’re doing it to because you’re going to treat that with a different style of investing, maybe a self directed Roth versus one at a firm?

Yeah, I don’t see any benefit to having more than one Roth IRA. Like you said, instead for the sole purpose that you are splitting up how that money’s invested. But even then, most of the time, you can do that within rolling one Roth IRA anyway used to be you would kind of do that because of the way the interpretation was years ago that each conversion has it’s own five year period, but the IRS went back and change that, that there’s only one clock, it’s the original five year clock. So each conversion doesn’t have to wait five years, it falls under the original five years. So you could do a and this also has to do with your 401k. And such doesn’t have to fall under a new clock. So if you’re rolling over money, converting money, and adding contributions in like, at age 60, if you did it at 58, and then wanted to start taking it out at 60. Heck, you set the clock up 30 years ago, so that money and those earnings from that block that was added in later, do not have to wait five years, it’s all the same. And the the magic of is just to keep putting money in and create that compounding is you get a tax free $100,000 built up in 10 years, it’s gonna be 200,000. And, you know, if you’re 7%, you’re doubling about every 10 years. Now, one of the things he mentioned about adding money, you know, the trick and there’s no limit and old age either on adding up a 80, what’s the trick? You got to have some earned income?

You know, I had a gentleman tell me when he was kid, he was trying to set up a Roth account. And he said, Well, they said, Well, I’ve got money. And they said, Well, yeah, but it’s got to be earned income. And I said, So where were you getting the money from? He said, I was cutting grasses. I said, Yeah, it’s got to be money that you paid taxes on his earned income. He said, Yeah, I wasn’t paying taxes on my lawn mower earnings there. So does that help you, Gary?

What a surprise. You know, as far as not paying taxes on income, lawn mowing earnings, but, of course, you said, you know, you made a good point that it has to be earned income, earned taxable income, to be able to qualify to set one up, but Jude also mentioned income, and IRS maximum contribution limits. And I’m sure those can change at any time. But what are they currently what is the income limit? And the contribution limits currently for tax year 2022.

If you’re married filing jointly, the phase-out starts at 204,000. And then you’re phased out at 214,000. When you’re over that single starts at 129,000. And you’re phased out at 144,000 of the Did I miss anything there? There are other numbers for married filing separately and stuff like that. The other thought there is if you said, What do I do to get money into that? Backdoor Roth is a strategy. Now, if you have an IRA, that’s not going to work, too well, the rule has the IRS has this rule called pro-rata. So if you have a traditional account and money in it, just call a traditional IRA and what I I’ll do the backdoor Roth, and do a contribution, it doesn’t work that way, you’ve got to have no traditional funds for the back door to work. Otherwise, you do in pro-rata, which means Yeah, you can do some of that, but you got to do convert some money over as well. So that kind of negates that opportunity. And then there’s another one out there. That’s pretty neat, depending on your firm, and this works great for solo 401k Small firms. And that is the mega backdoor Roth if your 401k allows after-tax contributions, and as well as in-service because then you could do overcut tribute that way to your account, and then you can convert that money over to a Roth. Am I good there Jude? Yeah. Okay, I know you’re proud of me over here all this tech stuff that we know and share with people.

Thanks to everyone for tuning in to this week’s episode of the Ask Gregory podcast. We’d like to give a big thanks to our guests Jude Heath and Brandon Bergeron, for joining us on this week’s episode of the podcast. And don’t forget we do have a complimentary download waiting for you on this topic. If you go to gregoryricks.com/podcast76 Again, that is gregoryricks.com/podcast76

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