One thing that sets Roth IRA’s apart from other retirement savings plans is their availability as an option for passing on a large chunk of money to your loved ones – outside of probate – when you pass away.
How does this work?
A Roth IRA is a “tax-free” account, which means that you contribute to the account with after-tax dollars, and then (as long as you follow all the rules) the money you later withdraw from the account isn’t taxed.
Because contributions are taxed on the front end, there’s no annual required minimum distribution once you reach age 70 ½. So, money deposited into a Roth IRA is allowed to grow, tax-free, indefinitely.
If you don’t need the money in the account to live on during your retirement years, this means that you can build up quite an inheritance to pass on to your spouse, your child, or anyone you choose. And because you designate one or more beneficiaries for your Roth IRA, when you do pass away, the account is transferred outside of the probate process.
Be Careful With Beneficiary Designations
When it comes to designating a beneficiary for your Roth IRA, you’ll just need to fill out the form provided by your account custodian. You can designate more than one beneficiary, but if you want to leave them unequal shares of your account, you’ll need to specify this. Otherwise, multiple beneficiaries will receive equal shares of your account.
And, it’s important to remember that, once you’ve designated a beneficiary for your IRA, your will and living trust have no control over that account. So, when you review your estate plan, you’ll also want to take a look at your retirement plan beneficiary designations, to make sure your wishes are still reflected.
Leave a Reply