Individual retirement accounts are obviously useful for those planning for retirement, but one type of IRA also has estate planning value.
Traditional individual retirement accounts are designed to allow you to make contributions before you pay taxes. The assets in the account grow over the years and you are not taxed upfront.
Once you reach the age of 59 1/2, you can start taking withdrawals without being penalized. However, you are going to have to pay income taxes on your withdrawals.
Another thing to take into consideration with individual retirement accounts of the conventional variety is the fact that you cannot choose to keep the money in the account without touching it as an estate planning strategy. Once you reach the age of 70 1/2, you are required to take mandatory minimum distributions.
There is another type of individual retirement account called a Roth IRA that does indeed have some estate planning value.
Contributions made into a Roth individual retirement account are made after taxes have been paid on the earnings in question, so the rules with regard to distributions are quite a bit different.
You are not required to pull any money out of the Roth IRA when you reach any particular age. If you were to recognize that you did not need the funds that are in the account you could let them grow tax-free throughout the rest of your life after you attain senior citizen status.
If you do this the beneficiary or beneficiaries will inherit the resources after you pass away. It should be noted that the beneficiary would be forced to take required minimum distributions. But, he or she could take the minimum to maximize the benefit of tax-free earnings.
- Updated Federal Gift and Estate Tax Figures for 2023 - January 26, 2023
- Why Estate Planning Is Important for Multi-National Couples - January 24, 2023
- When Do I Need to Update a Trust Agreement? - January 19, 2023