One aspect of estate planning that many who try – the ‘DIY’ route – do not quite get right, is the coordination of all aspects of the plan – including retirement accounts that complement your estate plan.
One plan that has increased in popularity over the past few years is a Roth IRA account. A Roth IRA account allows you to avoid future taxation of your retirement funds by making non-deductible contributions now. While a Roth IRA does not offer the immediate tax savings of a traditional IRA plan, it allows the distributions to be tax free.
There are several advantages when it comes to Roth IRA’s:
1. There is no requirement that you take yearly minimum distributions once you reach age 70-1/2, as other retirement accounts may require.
2. Funds in a Roth account have the potential to grow untaxed and untouched to leave for your beneficiaries.
3. A beneficiary who inherits a Roth IRA can withdraw the money without taxes or penalties, as long as the account has been opened at least five years prior to the death.
4. Your contributions to a Roth IRA may continue beyond age 70 ½.
Your current retirement account, or even an inherited employer sponsored plan, may be eligible to be rolled over into a Roth IRA, but you will be taxed on the account balance at that time. The tradeoff being, of course, that you will avoid income tax on later withdrawals.
As with any major financial or estate planning decision, consult with a professional before you make your choice. An estate planning attorney can advise you on many aspects of estate planning, as well as help you build a comprehensive estate and retirement plan that not only coordinate with each other, but help meet your family’s specific needs and goals.
Michael Robinson, Estate Planning Attorney
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