Archived Story

Roth IRA can help in long-term planning [UPDATED]

Published 9:35am Monday, January 14, 2013 Updated 11:38am Monday, January 14, 2013

You may already know that a Roth IRA is a great retirement savings vehicle, largely because its earnings grow tax-free (provided you don’t start taking withdrawals until you’re 59 and you’ve had your account at least five years).

But are you aware that a Roth IRA can also be quite useful in your estate planning? Here’s why:

No Required Distributions — Unlike a traditional IRA or a 401(k), you are never required to withdraw money from your Roth IRA.

And by leaving your account intact for as long as possible, you’ll have more money that may be available for you or your beneficiaries.

No “Age Limit” for Contributions — You can contribute to your Roth IRA as long as you have earned income, so if you do any type of work during your retirement years, you can potentially keep your account growing.

Furthermore, when you leave a Roth IRA to your beneficiaries, you can also pass along its key advantage — the ability to grow, tax-free, for long periods of time.

Suppose, for example, that your beneficiary is your spouse.

Upon inheriting your Roth IRA, he or she can take complete ownership of it, can continue contributing to it and can avoid taking distributions indefinitely.

If you leave your Roth IRA to someone other than your spouse, such as a child or grandchild, distributions must be taken generally over your beneficiary’s life expectancy.

In this case, each individual distribution may be a relatively small percentage of the account, allowing the assets in the Roth IRA to keep growing, tax-free, for decades.

However, although you can typically pass on a Roth IRA without burdening your beneficiaries with added income taxes, the same may not be true for estate taxes. Consequently, if a Roth IRA is going to be part of your estate, you’ll need to consult with your tax and legal advisors.

Nonetheless, it’s quite likely that, with careful planning, your Roth IRA can help extend your legacy far into the future – even as it helps you build resources for the retirement lifestyle you’ve envisioned.


Bonnie Denzel is a financial advisor with Dorn and Co., in Fergus Falls.

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