A Roth IRA is one of the many estate planning tools because of some of the tax advantages that apply. This article summarizes information about how Roth IRA’s can be a powerful investment tool both while you are alive and as a mechanism to transfer assets after you pass on.
What is a Roth IRA?
- A Roth IRA is an Individual Retirement Account to which you contribute after-tax dollars. While there are no current-year tax benefits, your contributions and earnings can grow tax-free, and you can withdraw them tax-free and penalty free after age 59½ and once the account has been open for five years.
Why is a Roth IRA beneficial for heirs?
- Many are happy to find out that heirs get to inherit your Roth IRA tax-free. This is quite the advantage compared to a traditional IRA or 401(k) where withdrawals made by heirs are taxed. In other words, you get to pass your Roth IRA benefits directly down to your heirs.
Are there specific benefits for a spouse beneficiary of a Roth IRA?
- Yes, spouses who inherit a Roth IRA have several advantageous options.
- If they are the sole beneficiary, they can be the account owner and avoid required minimum distributions (RMD’s) during their lifetime.
- If they are not the sole beneficiary, they can roll over their portion of the assets into an inherited or beneficiary IRA and stretch RMD’s out over their life expectancy.
- Roth distributions are tax free if the account has been open for at least five years.
Will my non-spouse IRA heirs have to take RMD’s?
- This question was asked and answered on nj.com, and the answer was “A non-spousal beneficiary must begin taking RMDs on the basis of his/her life expectancy by Dec. 31 of the year after the owner’s death.
Contact an Experienced Estate Planning Lawyer
There are many estate planning tools such as the Roth IRA to effectuate beneficial growth and tax treatment in life and for the heirs after your death. At the Law Office of David Knecht, we have extensive experience helping clients with estate planning and can help you make a plan that is just right for you and your loved ones. Contact us at 707-451-4502.
