How Could a Roth IRA Help with Estate Planning?

Roth IRAs are tax effective for beneficiaries.

Retirement planning and estate planning do not need to be separated.

In fact, planning ahead involves a holistic view of your finances and your goals.

According to a recent Motley Fool article titled “A Clever Way to Cut Your Heirs' Income Taxes,” a Roth IRA can be useful for both.

How so?

Money put into a Roth retirement account has already been taxed.

This means you do not owe federal income taxes when the money is withdrawn.

There is a caveat, however.

The account must have created at least five years before your death.

What if there is still money in the account when you die?

The account will be transferred to your named beneficiary on the account.

The IRS does have rules regarding inherited IRAs.

What are they?

The beneficiary is required to take distributions based on his or her predicted live expectancy.

The IRS has a table specifically for this purpose.

Your beneficiary does not need to remove all of the money at once.

If they do leave money in the account, it will continue to grow tax-free.

This will provide them with some valuable tax-free income in the future.

What if you are already retired?

Is it too late for a Roth IRA?

No.

You can convert a regular IRA to a Roth IRA at any age.

Work with an experienced financial advisor and your CPA to help run the numbers on this conversion to see if it is appropriate for your unique circumstances.

Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.

For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.

Reference: Motley Fool (September 14, 2017) “A Clever Way to Cut Your Heirs' Income Taxes”