individual Roth

[rajatbhatt]

Is there any advantage for a 70 year old person to open a new individual roth IRA vs just invest in a regular taxable account ?

[Bsch4477]

The advantage of a Roth is that any gains are not taxed and qualified withdrawals are not taxed either. 

[rajatbhatt]

what are the implications for inheritance of the individual roth? do the heirs pay tax on the inherited roth ?

[macuser_22]

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@rajatbhatt wrote:

what are the implications for inheritance of the individual roth? do the heirs pay tax on the inherited roth ?

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Distributions from an inherited Roth IRA are tax free to the named beneficiaries of the Roth IRA but must be totally distributed withing 10 years of death, unless the heir is the spouse of the deceased, then the spouse can treat it as their own IRA if transferred the the spouses own account, then there are no restrictions.

[Opus 17]

Remember that to contribute to a Roth IRA, you must have "compensation" (income earned from working).  

[Opus 17]

The other huge red flag here is the word "new" as in, setting up a new Roth IRA.

If you already have a Roth IRA, then it doesn't matter if you contribute to the same one or a new account.  But if you don't already have a Roth IRA and you open one, your withdrawals won't be "qualified" until the account has been open 5 years.  That means you could pay tax on your withdrawals if you withdraw the money too early.

Here's a  comparison for you, I think I've included all the important details

Investment account	Roth IRA
Can invest any funds from any source, any amount.	Can only invest if you have compensation from working, up to $7000 per year.
In most cases, will pay some income tax on capital gains and dividends within the account each year even if you don't make a withdrawal.	No taxes due unless you make a non-qualified withdrawal.
Can withdraw money any time, will owe capital gains tax if you have a gain.	Can withdraw the original principal contributions at any time without tax or penalty.  If gains (earnings) are withdrawn and it has been less than 5 years since you first opened a Roth IRA in your name, the earnings are taxed as ordinary income.  (You must also be over age 59-1/2 to make a tax-free withdrawal of earnings, but that is already cleared in your question.)
Your heirs inherit a stepped-up basis, and will only pay capital gains tax if there are additional gains between the date of your death and the date they cash out.	Your beneficiaries must cash out within 10 years, unless the beneficiary is your spouse, a minor child, or a disabled person, but the withdrawals are tax-free.**
Goes through probate as part of your estate.	Avoids probate and goes straight to the beneficiaries if you designate one or more beneficiaries.

**Note that one source says that a beneficiary who makes withdrawals from a Roth IRA will owe income tax if it is less than 5 years since they opened their first Roth IRA.  I couldn't find confirmation of this, but it might be worth asking an expert.  Or, if you plan to make your adult child your beneficiary, have them open a Roth IRA now with any token amount of money so they start the 5 year clock for themselves now.

Update: I found a note on the. IRS web site that beneficiaries are not subject to the 5 year holding rule. However, you should designate your beneficiaries instead of letting the Roth account go into your estate, so your beneficiaries get the full benefits of the Roth account. 

[CaddyGrn]

Question:  is there a minimum amount one must earn when over 70 to open a Roth IRA?  

[dmertz]

A Roth IRA contribution is not permitted to exceed compensation.  However, some IRA custodians might require some minimum contribution to open an IRA with them, so check with the custodian.

[CaddyGrn]

Thank you.  Your prompt reply is appreciated.