You contribute into an individual retirement account to set aside resources for your senior years. The contributions may accumulate over decades, and each step of the way, you really don’t know where you will stand when you attain senior citizen status.
If you are successful financially, when you decide that it is time to retire, you may come to the realization that you will never need the assets that you have in your IRA. At this point, you may wonder about the estate planning implications.
Let’s look at some of the facts.
Traditional Individual Retirement Accounts
Whether or not you are required to withdraw money from your IRA will depend upon the nature of the account. If you have a traditional individual retirement account, you made the contributions into the account with pretax earnings.
The government wants to be able to get some money eventually, so any withdrawals that you take are subject to regular income taxes. However, there can be a benefit here, because your taxable income may be less when you are retired than it was when you were working.
You are required to take mandatory minimum distributions when you are 70.5 years of age, because once again, the tax man wants to get his cut at some point.
Roth IRAs
Things are a bit different with Roth individual retirement accounts. Things work in the reverse manner from a tax perspective. You contribute into this type of account after you pay taxes on the earnings, and this changes everything.
Since you already paid taxes on the income, you are not required to take distributions at any time. You are free to allow the account to grow throughout the entirety of your life.
When you create a Roth IRA, you could name a beneficiary. If your beneficiary is someone other than your spouse, after you pass away, the beneficiary would be required to take mandatory minimum distributions. These distributions would not be subject to taxation, and this is a huge benefit.
Plus, the beneficiary can choose to stretch the individual retirement account. If the beneficiary takes nothing more than the minimum that is required by law, the assets in the account can grow tax-free for an extended period of time.
The amount of the mandatory minimum distributions will be tied to the life expectancy of the beneficiary, so a younger beneficiary can stretch an IRA for a longer period of time.
Free Report on Individual Retirement Accounts
We have provided some basic information here, but you can learn more about the estate planning value of individual retirement accounts if you download our in-depth special report. This report is free, and you can click the following link to access your copy: Free IRA Report.
Mr. Horowitz was awarded his Juris Doctor degree with honors from the University of Connecticut School of Law. While attending law school, Mr. Horowitz received the American Jurisprudence Award in Legal Ethics and the Nathan Burkan Award.
After graduation from law school, Mr. Horowitz continued his legal education at New York University School of Law where he received a Post Doctorate Law Degree in Taxation. He has also recently received a national achievement award.
Mr. Horowitz is admitted to practice before all the state courts in the State of Connecticut and the United States District Court.
Mr. Horowitz was selected for Super Lawyers in 2021.
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