Can My Roth IRA Be An Estate Planning Tool?

Roth IRAs allow you to pass along as much wealth as possible to your heirs if they are structured appropriately. With the SECURE Act, the opportunity to use a Roth IRA as an estate planning tool increased significantly. This is because your beneficiaries must now withdraw the entire IRA balance within 10 years of receiving the inheritance. Even though Roth IRAs are subject to this rule, withdrawals made can still be made tax free.Roth IRA mockup with calculator pen and glasses

In the context of traditional estate planning, this makes a Roth IRA even more powerful. You’d want to set up and fund your Roth IRA or convert your traditional IRA if you don’t already have one. You would then designate your spouse or other chosen person as your Roth IRA beneficiary. Naming someone in your will for this beneficiary is not enough because beneficiary forms filed directly with your Roth IRA manager supersede what is listed in your will.

Update your estate planning documents to reflect the inclusion of this new asset and explain who is the designated beneficiary. Include instructions that if this person outlives you, they will treat the account as their own by then retitling it in their own name. A surviving spouse can then name the child as the new named beneficiary of the Roth IRA when you pass away, and the child must begin taking minimum distributions by the end of the year following a spouse’s death.

This is just one example strategy of how to use a Roth IRA for estate planning purposes. Communicating with a Plymouth, MI estate planning attorney is another recommended step to protect your options and to ensure that you’ve considered all possible strategies and documents for estate planning.



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