When you are planning your estate you should be aware of all the possible courses of action that are available to you. This is why it is a good idea to speak with a licensed estate planning lawyer before you make any decisions.
With the above in mind let’s take a look at how a Roth individual retirement account could be used as an estate planning tool.
If you have a conventional individual retirement account you make contributions before you pay taxes. The growth is not taxed along the way, but you pay income taxes when you withdraw funds from the account. You can start withdrawing money from the account when you are as young as 59.5 years of age without triggering any penalties.
With a conventional individual retirement account you must begin taking distributions when you reach the age of 70.5.
On the other hand, with a Roth IRA you make your contributions with after-tax earnings. As a result you don’t have to pay taxes when you withdraw money from the account.
In addition to this, unlike the conventional individual retirement account you are not forced to accept distributions. You can let that tax-free interest continue to accumulate unto you pass away if you choose to go this route.
This is obviously going to be good for the beneficiary or beneficiaries. There is a mandatory distribution requirement for the beneficiaries, but they could take the minimum allowable by law and stretch out the benefit of tax-free growth for as long as possible.