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.
How Do I Incorporate My Roth IRA into My Current Estate Plan?
Individuals can make it clear in their estate plan who they wish to receive the assets in the Roth IRA—be it a spouse or other loved one. It is important to note that if the Roth IRA is being given to a non-spousal beneficiary, then they are required to withdraw the entire amount of the Roth IRA within ten years of inheriting it. This rule applies to both Roth and traditional IRAs; however, there is still the benefit of the withdrawals from the Roth IRA being tax-free. Estate planning attorneys can also assist loved ones who have inherited a Roth IRA to ensure that they are complying with both federal and states guidelines.
Because amending estate plans can be tricky for individuals to successfully handle on their own, estate planning attorneys are here to assist. They are experts in including new documents into current estate plans and ensuring the plan is effective and useful for the individual and their family.
Contact a Houston Estate Planning Attorney
If you or a loved one needs help creating a Houston estate plan—or has questions about your current estate plan—contact the attorneys at McCulloch & Miller, PLLC. While estate planning may seem overwhelming and anxiety-inducing, our attorneys are here to help demystify the process. We have decades of experience creating estate plans for our clients, along with amending estate plans to include new, necessary documents. To learn more and to schedule a consultation, give us a call today at 713-333-8900.