How a Roth IRA Can Benefit Your Estate Plan


Since they can reduce estate taxes and leave no income tax for your heirs to pay on withdrawal, Roth IRAs make excellent wealth transfer vehicles for your estate plan. However, there are a few things to consider if you're t hinking about establishing a Roth IRA or converting to one from a Traditional IRA.

The most important point to remember about Roth IRAs is that they best focus on ensuring the security of future generations. Do not establish or convert an account until your own personal standard of living is secure without the IRA.

If you feel confident in your decision to establish a Roth IRA or convert a Traditional IRA to a Roth IRA, evaluate your account type carefully. Not all Roth IRAs are created equally, so it's vital that you read the fine print to understand the advantages and disadvantages of your particular account.

When converting a Traditional IRA to a Roth IRA, you are required to pay income taxes on the converted amount because it is treated as a distribution. When doing so, you're effectively paying taxes for your heirs since they would have owed these taxes in the future when taking distributions from the account. You're also offering income tax benefits to yourself, since the MRDs (Minimum Required Distributions) after age 70 ½ can reduce itemized deductions, increase taxes on your Social Security benefits, or push you into a higher tax bracket.

Roth IRAS do not generally require MRDs from the account holder, but MRDs are required when the account is inherited by someone else. The MRDs for a second generation account holder are tax free, however. If the beneficiary is relatively young, it is likely that the distributions will be less than the account earnings, so the IRA will continue to grow and provide a valuable retirement asset.

How Can We Help?

Our Pasadena estate planning attorneys can help you create a plan that best addresses the use of Roth IRAs, as well as any other specific concerns that you might have. Please call our office at (626) 683-8113 or email us at to schedule an appointment.