We specialize in estate planning and elder care, but your estate plan should be contained within a broader, long-term financial plan. If you want to be able to enjoy your golden years to the fullest, you should have a solid retirement plan in place. For many people, an individual retirement account will be part of the plan.
There are two different types of individual retirement accounts that are typically utilized. Let’s look at the details.
Traditional Individual Retirement Accounts
With a traditional individual retirement account, you make contributions into the account before you pay taxes on the earnings that you are contributing into the account. When you reach the age of 59.5, you can begin to take penalty-free withdrawals from the account. These withdrawals would be subject to regular income taxes.
You must begin to take mandatory minimum distributions when you reach the age of 70.5. This is because the IRS wants to be able to collect the taxes that were deferred in the first place.
Roth Individual Retirement Accounts
There is another type of individual retirement account that is called a Roth IRA. There are some similarities between the Roth IRA and the traditional account, but there are some major differences.
With a Roth IRA, you make contributions after you pay taxes on the income. When you reach the age of 59.5, you can start taking withdrawals without being penalized. These withdrawals would not be subject to taxation, because you already paid taxes on the income.
You are not required to take mandatory minimum withdrawals when you have a Roth individual retirement account, because taxes have already been collected.
Estate Planning Benefits
There are some estate planning benefits that go along with the creation of a Roth IRA, because you are not required to take mandatory minimum withdrawals. If you do not need the money, you could allow the account to grow throughout your entire life. When you open the account, you name a beneficiary who would inherit the account at the time of your death.
If the account rolls over to your surviving spouse, he or she would not be required to take mandatory minimum distributions.
When someone other than your spouse inherits the account, this individual would be required to take mandatory minimum distributions. However, the tax advantages can be extended for as long as possible if the beneficiary chooses to stretch the IRA. He or she could take the bare minimum that is required by law, and the tax-deferred growth would be maximized.
Download Our Free Report
We have prepared a free report that examines the estate planning benefits of individual retirement accounts. If you would like to download your copy of the report, click this link and follow the simple instructions: Free IRA Report.
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