More retirees planning their legacy are considering Roth Individual Retirement Accounts (Roth IRA) conversions as part of their strategy. A Roth IRA conversion involves moving assets from other retirement plans into a Roth IRA, allowing earnings to grow tax-free and potentially leaving more for heirs, who can generally withdraw the money tax-free if they follow IRS distribution rules.

This strategy is particularly beneficial for individuals who want to pass down tax-free assets to their heirs and those seeking to diversify their retirement savings.

By understanding the process and seeking professional guidance, retirees can make well-informed decisions to optimize their retirement and legacy planning.

Whether you are a beneficiary or a potential account holder looking to plan your estate, let’s look at insights into the unique considerations, benefits, and potential pitfalls of inheriting a Roth IRA:

The Secure Act of 2019

The Secure Act of 2019, a significant retirement plan legislation, has introduced key changes that can impact retirement and inheritance planning. One of the provisions of the Secure Act is the extension of the required minimum distribution (RMD) age from 70½ to 72, allowing for a longer tax-deferred growth period for retirement accounts.

This change gives individuals more flexibility in managing their retirement savings and potentially leaving a larger inheritance for their heirs.

Additionally, the Secure Act has implications for non-spouse beneficiaries who inherit retirement accounts, such as Roth IRAs. It requires most non-spouse beneficiaries to withdraw the funds from the inherited account within 10 years, which can affect the tax implications for heirs.

Understanding these new distribution rules is crucial for individuals considering Roth IRA conversions as part of their inheritance strategy, as it can impact the tax efficiency and long-term growth of the inherited assets.

Roth Conversation May Benefit Heirs:

Tax-Free Inheritance: When heirs inherit a Roth IRA, they receive the full balance of the account without any income tax liability, as the taxes have already been paid on the converted funds. This can be particularly advantageous under the new distribution rules introduced by the Secure Act, which require most non-spouse beneficiaries to withdraw the funds from the inherited account within 10 years

Estate Tax Efficiency: A Roth IRA conversion can potentially help immediately lower the value of the account owner’s estate by the conversion amount. For individuals with large estates that may be subject to estate taxes, this strategy can be a tax-efficient way to pass down assets to heirs\

Avoiding Required Minimum Distributions (RMDs): Unlike traditional IRAs, Roth IRAs are not subject to RMDs during the account owner’s lifetime. This means that heirs who inherit a Roth IRA can benefit from continued tax-free growth without being forced to take distributions within a specific time frame, as required for traditional IRAs under the Secure Act

Your Financial Professional

Roth IRA conversions as a strategic move in legacy planning may be especially advantageous for those aiming to pass down tax-free assets and diversify their retirement savings. To make well-informed decisions, it’s crucial to look for the guidance of a financial professional who can create a custom strategy for you and potentially help achieve your financial goals.

A financial professional can also navigate the legislation of this strategy and help you understand the benefits and potential pitfalls, such as the role of The Secure Act of 2019 and other tax implications. Awareness of these rules is crucial for those considering Roth IRA conversions for inheritance planning.

To consider all the factors that impact this strategy, make informed decisions, and feel confident in the process, let’s schedule some time on the calendar for a complimentary meeting.

ℹ️ Roth accounts require the owner to be 59.5 years old and have had the account open for 5 years to take penalty-free withdrawals.
Investing involves risk, including possible loss of principal. No investment strategy can ensure financial success or protect against losses.
This information is being provided only as a general source of information and is not intended to be the primary basis for financial or estate planning decisions. It should not be construed as advice designed to meet the particular needs of an individual situation. Please seek the guidance of a financial professional regarding your particular financial concerns. Consult with your tax advisor or attorney regarding specific tax issues.