If you have an individual retirement account (IRA), you may have every intention of using the assets in the account to fund your senior years. There is certainly nothing wrong with this, but if you are so inclined, you may be able to use your IRA for estate planning purposes.
There are essentially two different types of individual retirement accounts that are widely utilized: traditional individual retirement accounts, and Roth IRAs.
With a traditional IRA, you can start to take penalty free withdrawals when you are 59.5 years of age, and you are required to take mandatory minimum distributions when you are 70.5 years old. The distributions would be taxed at your regular income tax rate, because you make pretax contributions into the traditional individual retirement account.
Depending on the circumstances, there could be something significant left in the account after your passing. The beneficiary that you name on the account would assume ownership of this remainder, and the beneficiary would be required to take mandatory minimum distributions.
These distributions would be subject to income taxes as well, but the beneficiary could take only the minimum amount that is required by law. As a result, the tax-deferred growth would be stretched out for as long as possible.
Things are even better from an estate planning perspective with a Roth individual retirement account. The same situation applies with regard to your ability to take withdrawals at the age of 59.5 without being penalized. However, these distributions would not be subject to taxation, because you contribute into the account after you pay taxes on the income.
Since you already paid your taxes, you are not required to take mandatory minimum distributions when you reach the age of 70.5 when you have a Roth IRA. If you never need the funds in the account, you have the ability to allow the account to grow without removing anything from it.
The beneficiary that you name on the account would assume ownership of the account after your passing. Mandatory minimum distributions would be required, and the amount of the required distributions would be based on the life expectancy of the beneficiary. The younger the beneficiary is, the lower the mandatory minimum distribution requirement would be.
These distributions would be tax-free distributions. If the beneficiary takes only the minimum that is required by law each year, the tax-deferred growth would be maximized.
Free Report on IRAs
If you would like to learn more about the estate planning benefits of individual retirement accounts, download our special report. This report is being offered free of charge at the present time, and you can access your copy through this website.
To get your copy of the report, visit this page and follow the simple instructions: Estate Planning & Individual Retirement Accounts.
- Should I Tell My Loved Ones the Details of My Estate Plan? - November 23, 2022
- Protecting Assets with an Intentionally Defective Grantor Trust - November 16, 2022
- How to Keep Your Estate Plan Private - November 9, 2022