When people think about beginning the estate planning process, they often think about creating a will and power of attorney documents. They do not often consider how a Roth IRA can—and should—be incorporated into the estate planning process. Roth IRAs are a powerful tool that can benefit individuals as they plan for their future and make sure their loved ones are financially taken care of after they pass away. Below are common explanations to common questions about Roth IRAs and why they should be included in estate planning efforts.
What is a Roth IRA?
A Roth IRA is a retirement account that allows individuals to make tax-free withdrawals. Unlike traditional IRAs, individuals pay taxes on the money going into the account, which then makes future withdrawals tax-free. This is beneficial when individuals think their taxes will be higher in the future, once they are retired, than they are currently.
What Are the Benefits of a Roth IRA?
One benefit of a Roth IRA is there are no required minimum distributions—this is majorly beneficial when Roth IRAs are incorporated into estate plans. Required minimum distributions are minimum amounts that a retirement account owner must withdraw every year. Since Roth IRAs do not require the owner to make withdrawals every year, the funds can grow, tax-free, for the individual’s beneficiaries to use in the future. This is one way to include extra assets in an estate plan to help make sure beneficiaries are financially taken care of after the Roth IRA account owner has passed away.