He wants to leave tax-free money to his heirs. The sooner you start a Roth IRA, the better. There is no age limit for contributing funds, but there is an age limit for starting withdrawals. You must be 59 and a half years old to start withdrawing income from contributions, or you must pay taxes and fines.
In addition, to avoid taxes, the funds must be in the account for five years. Roth IRAs have been marketed as the retirement account for young savers. But it can also be a good option for more mature investors. In general, you want to protect your assets in a Roth if you expect your tax rate to be higher when you retire than it is now.
This is another reason why young people with low salaries and with a low tax bracket choose them. Generally, you'll want to have assets in a traditional IRA if you expect your tax rate to drop when you retire. That's the case for most people when they stop working. In that case, you can contribute to a traditional account and a Roth account in the same year, thus covering your bet.
In the family of financial planning products, the Roth Individual Retirement Account (IRA) sometimes resembles the great younger sister of the traditional IRA. Although age is not an issue in the Roth decision, there are other factors that will determine how much you can save in a Roth for a given year. As noted above, the IRS doesn't allow contributions to a traditional IRA after age 70 and a half, so a Roth is your only IRA option after that age. It allows you to make the maximum allowable contribution to the IRA or 401 (k) and, at the same time, have extra money available for other purposes before you retire.
With a traditional IRA or 401 (k), you invest with pre-tax money (your contributions are deductible from taxable income) and pay income tax when you withdraw money when you retire. According to the Institute of Investment Firms, nearly a third of Roth IRA investors are under 40, compared to just 15% of traditional IRA investors. A Roth IRA is an IRA that, except as explained below, is subject to the rules that apply to a traditional IRA. A traditional IRA or 401 (k) can generate a lower adjusted gross income (AGI) because pre-tax contributions are deducted from that amount, while after-tax contributions to a Roth account are not.
Traditional IRAs have existed for much longer, and retirees often transfer assets from their 401 (k) plans to the reinvestment accounts of a traditional IRA, accounting for most of the growth of IRAs. If you can't leave the earnings from your contributions in a Roth IRA for a sufficient period of time (five years), you will be fined for early withdrawal. Because of those differences, you could end up paying more taxes in the long run than if you deposited the full amount you can afford to invest in a Roth account in the first place. On the other hand, if you choose a traditional IRA or a 401 (k), you must divert a smaller portion of your income to retirement in order to make the same monthly contributions to the account.
Even so, those who hesitate to save for retirement early in life because their bank accounts are dangerously close to zero should be comforted by the way Roth IRAs are designed. When you take out money, you're only tax-free if you've been in your Roth IRA for five years and are 59 and a half years old.