It seems pretty straightforward that an individual retirement account is intended to provide assets to be utilized during retirement. However, a certain form of IRA can also have value when you are planning your estate.
Conventional individual retirement accounts involve contributions that are made over time before taxes have been imposed. If things go as planned the assets that have been placed into the account will grow over the years as you continue to make contributions.
There is a penalty for withdrawing assets prior to reaching the age of 59 1/2. Once you have reached this age you can take distributions without penalties for early withdrawal. But, these withdrawals are going to be subject to taxes on the income.
You don’t have to take distributions if you don’t want to when you first become eligible to withdraw funds without being penalized. But, you do have to start taking minimum required distributions when you are 70 1/2 years of age.
On the other hand, with a Roth IRA you make the contributions after paying taxes. Because of this there are different rules governing distributions.
You are not required to take minimum distributions when you are 70 1/2 when you have a Roth IRA. You can just watch the assets in the account grow if you don’t need the money.
When you do this with your heirs in mind you are allowing the tax-free growth to add up for the benefit of those that will be inheriting these resources.
The beneficiaries will be subject to minimum distribution requirements, but they can spread them out over a maximum amount of time to take full advantage of the tax-free growth.
Blaine Peterson
Author, Attorney
Parman & Easterday
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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