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Home >> Estate Planning Articles >> Does a Roth Make Sense for You?

Does a Roth Make Sense for You?

October 31, 2011 by Robert Kulas.

Compliments of Our Law Firm,
By: The American Academy of Estate Planning Attorneys

Since Congress introduced the Roth IRA in 1997, certain retirement account owners have been able to choose between two kinds of accounts with very different features. Whether a Roth is the right option for you depends on a number of factors, including your income and your savings goals.

Traditional IRA

A traditional IRA is a tax-deferred account. Contributions to the account are made with pre-tax dollars, meaning that you get a tax deduction for money you put into your account, and you normally don’t pay income tax on your IRA funds until you start withdrawing those funds during retirement. Because you are not taxed on traditional IRA contributions, federal law requires that you begin taking a minimum annual distributions from your account shortly after you reach age 70 1/2. The exact amount of these annual distributions is determined by your life expectancy. You pay a penalty if you do not withdraw at least the minimum in any given year.

Roth IRA

A Roth IRA, by contrast, is a tax-free account. You do not get a tax deduction for Roth contributions in the year you make them. However, provided you follow certain rules, you can withdraw the principal and earnings on the account tax-free when you reach retirement age. Further, unlike a traditional IRA, a Roth carries no requirement that you take annual distributions beginning at age 70 1/2. This provides the potential for account funds to grow tax-free throughout your lifetime and makes a Roth IRA an appealing estate planning tool for many individuals.

Contribution Caps

Contribution limits for traditional and Roth IRA’s are the same. In 2011, those under age 50 may contribute up to $5,000 in earned income to an IRA. If you reach your 50th birthday before the end of 2011, you are eligible to make “catch up” contributions, bringing your total IRA contribution limit to $6,000.

Income Limits

Not everyone is eligible to contribute to a Roth IRA. If you are married filing jointly, your 2011 income must be below $169,000 in order for you to make a full contribution. The amount you may contribute is phased out as your income increases from $169,000 to $179,000. If your income is $179,000 or higher, you are ineligible to contribute to a Roth IRA. The phase out range for individual filers in 2011 is $105,000 to $120,000.

Conversion

Regardless of your income, you have the option to convert a traditional IRA to a Roth IRA. When you convert, you pay income tax on all the funds in your traditional account, including both principal and earnings. However, after those funds are converted into Roth funds, they are never again subject to income tax.

If you won’t need to rely on your IRA for retirement income, a Roth conversion could be a smart estate planning choice. For example, if you’re 70 years old and have $300,000 in a traditional IRA, converting to a Roth would eliminate the need for you to take any future distributions from your account. So, if you earn 8 percent on the funds in your account and live to age 86, you’ll pass on well over $1 million to your heirs through your Roth IRA. Your beneficiary will take minimum required distributions based on their life expectancy. However, since it’s a Roth IRA, all the distributions to them will be income tax-free.

Roth 401(k)

With the popularity of Roth IRA’s, Congress expanded the concept to 401(k) plans. A Roth 401(k) is a hybrid of a traditional 401(k) and a Roth IRA, and it is only available if your employer offers you the option.

Like a traditional 401(k), a Roth 401(k) carries no income restrictions, and the usual 401(k) contribution limits apply. For 2011, you may contribute up to $16,500 if you are under age 50, and you may contribute up to $22,000 if you are age 50 or older. These limits apply to contributions made to both kinds of 401(k) plans; you cannot use a Roth 401(k) to double your 401(k) savings.

Like a Roth IRA, the funds contributed to a Roth 401(k) are not tax deductible; however, withdrawals are tax-free. A qualified estate planning attorney can help you put your retirement accounts to work for you and your beneficiaries.

Kulas & Crawford

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Everyone treated us extremely well.  Robert explained how a trust works and the benefits of having one.  We decided to move forward and complete the process.  He was very kind and knowledgeable.  Julie was also very helpful and very patient with our questions.  We felt very comfortable with this firm handling our affairs.  We would highly recommend this firm to our friends and family.

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"Everyone treated us extremely well.  Robert explained how a trust works and the benefits of having one.  We decided to move forward and complete the process.  He was very kind and knowledgeable.  Julie was also very helpful and very patient with our questions.  We felt very comfortable with this firm handling our affairs.  We would highly recommend this firm to our friends and family."

Janice M
Client Review
August 25, 2020
    

Robert Kulas and staff made making a will an easy to understand process. They were very knowledgeable and attentive to my wishes. All my documents were provided in an organized binder which will be a great asset to my family. I would definitely recommend them.

Krissy L.
Client Review
August 25, 2020
    

I have worked with Mr. Kulas & staff before. And they are very professional. I am very satisfied with Mr. Kulas and his staff and give them the highest satisfaction and 5 star rating.

Leo C.
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Mr. Kulas and his staff have been extremely helpful & knowledgeable for the over 3 years we have been associated. They are easy to talk to and explain everything without feeling rushed. Very competent and professional.

Mildred W.
Client Review
August 25, 2020
    

I have known Robert Kulas for 20 years since I was co-executor for friends who had Mr. Kulas prepare a Trust for them. When I felt I needed a trust also, I came to him. I have always been completed satisfied with his work and that of his charming, competent staff.

Joan C.
Client Review
August 25, 2020
    

We began our estate plan process in 2004 (12 years ago) and have been pleased with the periodic reviews we have gone through and when changes have been needed the firm has been thorough and professional in making those changes.

L.G.K.
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