Home > Blog

Planning Your Estate With A Roth IRA

In this last installment of our Roth IRA series, we will discuss how you may use Roth IRAs after retirement to minimize your tax liability. Finally, estate planning is another area where Roth IRAs might be useful. A simple estate planning option is a Roth IRA. When you set up a Roth IRA, you simply designate a beneficiary or beneficiaries. Although the time commitment is small, the impact on how your assets are handled and dispersed after your death is substantial.

If you have any questions about managing your equity holdings and wealth management, don't hesitate to get in touch with GLP Financial Group.

Designating Your Heirs

The few minutes it takes to name beneficiaries for your Roth IRA accounts might greatly impact your heirs' financial futures. When you start a Roth IRA, you may be asked to provide the names and addresses of beneficiaries. That's why it's crucial to plan for who you want to inherit your wealth and how you want them to handle it.

You and Your Spouse

A spouse who inherits a Roth IRA has the greatest options available to them since they can simply treat the account as their own, a process known as a "spousal transfer." Your spouse can keep postponing any needed payouts till the end of their life. Your spouse must be the sole beneficiary of the first Roth IRA, but they will be able to choose their own beneficiaries later on. This alternative aids in extending the tax-free accumulation period.

Beneficiaries who are not spouses

If someone other than your spouse receives your Roth IRA as an inheritance, they will be required to take withdrawals either in a single amount or spread out over 10 years. This non-spousal beneficiary group has ten years from your death to disperse all of the account's assets. However, the whole account balance must be distributed after the ten-year term, even if there are no annual RMD requirements. 

You can give your heirs the option to receive their payouts in a lump amount if they like. All of these payments will be made to your heirs free of federal income tax if the account has been open for at least five years before your death.

Excepted Successors

Eligible designated beneficiaries are a special category of inheritors who are allowed to spread out payouts from an inherited Roth IRA over their own life expectancy without violating the standard payout limitations. Included in this group of recipients are:

  • The account's new owner must be the deceased account holder's spouse.
  • Anyone no more than ten years younger than you.

More to Read: