An individual retirement account or IRA can be a big part of your retirement plan. At the same time, under certain circumstances, the perfect utilization of an individual retirement account can be an effective part of your estate plan as well.
Before we get into the details about stretch IRAs, we should look at the two different types of individual retirement accounts that are typically utilized. One of them is the traditional IRA.
With a traditional IRA, the contributions that you make are made before you pay taxes on the income. As a result, you realize tax benefits right away, because your taxable income is reduced by the contributions. However, since you made pretax contributions, withdrawals from the account would be subject to regular taxes.
You can start to take withdrawals without being penalized when you are 59.5 years of age, and you are required to take mandatory minimum distributions when you are 70.5, even if you do not really need the money. As a result, if you live a regular life span, you cannot simply allow the money to grow indefinitely as an estate planning decision.
If there is something left in the account after your passing, the beneficiary would be required to take mandatory minimum distributions, but he or she could stretch the individual retirement account by taking only the minimum that is required by law. This would maximize the tax deferred growth. We should point out the fact that the distributions would be subject to income taxes.
Contributions into a Roth IRA are made after taxes are paid, so any withdrawals that are made are not subject to taxation. Plus, you are not required to take money out of the account at any time, because the IRS has already been paid.
If you never need the money, you could indeed use a Roth IRA for estate planning purposes. You could allow the account to grow throughout your life with the intention of passing the account along to a beneficiary.
Assuming the beneficiary is someone other than your spouse, he or she would be required to take mandatory minimum distributions after your passing. Once again, the beneficiary could choose to stretch the individual retirement account to take full advantage of the tax benefits. The distributions to the beneficiary would be income tax-free.
In-Depth Special Report
We have provided a broad overview in this brief blog post, but you can download our in-depth special report if you would like to obtain more detailed information about the estate planning benefits of individual retirement accounts. This report is being offered on a complimentary basis right now, and you can access your copy through this website.
To get your copy of the report, click this link and follow the simple instructions: Free IRA Report.
To Schedule a Free Consultation
If you are interested in the possibility of working with our firm after learning these facts, please select our “Workshops” tab to RSVP for a free estate planning workshop. At that workshop you will be offered a free one-hour consultation with an attorney: www.collinslawgroup.com/seminars/
- Can the Beneficiary of My Life Insurance Policy Be a Trust? - May 30, 2023
- Are Your Digital Assets Included in Your Estate Plan? - May 27, 2023
- What Is a QTIP Trust? - May 25, 2023