What happens if you leave your Roth IRA to your estate?

Roth IRAs have become the darling of the financial media recently. Of course much of the chatter has been about using a Roth as part of your retirement planning strategy, and the superb conditions for Roth conversions. But what about the Roth IRA and your estate planning, what happens if you leave your Roth IRA to your estate? Marketplace Money guru for American Public Media, Chris Farrell, recently fielded the question.

“When it comes to estate planning, the Roth ranks among the best of the retirement savings plans,” says Farrell. Why? Unlike a traditional IRA, a Roth does not have “required minimum distributions” that force you to take money out during your lifetime. This means the money can remain in the account longer, and compound longer.

Because you can leave your money in the account without taking distributions, your Roth can be a powerful estate planning tool. Here are some of the major points to keep in mind:

  1. The Roth has to have existed for at least five years before earnings can be withdrawn tax-free.
  2. When you die, your Roth is considered part of your estate. If your spouse is the beneficiary, then the account is simply treated as belonging to him or her.
  3. If your children are the beneficiaries, they will have to make some choices. They can elect to receive the entire sum by the end of the fifth year following your death – or they can receive distributions over their life expectancy (allowing the money to compound longer).

As you can see, there are some powerful estate planning strategies available, and some of your long-term goals could be met utilizing a Roth IRA. Call our office if you’d like to discuss how a Roth IRA could be used to help meet your estate planning goals.

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