Can an IRA Be Used for Estate Planning Purposes?

Many people contribute into individual retirement accounts while they are working. There are essentially two different types of IRAs that are typically utilized: traditional IRAs, and Roth individual retirement accounts.

With a traditional individual retirement account, the contributions are made before you pay taxes on the income. This tax deferral is one of the advantages, because you pay taxes each year on a lesser amount of income.

Because of this arrangement, you do have to pay taxes when you start to take distributions. You can take penalty free distributions when you are 59 1/2 years of age.

With this type of individual retirement account, you are required to take distributions when you are 70 1/2. So, if you live beyond this age, you cannot let the assets grow indefinitely so that you can pass them along to an heir.

However, there can still be advantages from an estate planning perspective. The beneficiary of assets that remain in a traditional IRA could stretch the individual retirement account. Mandatory minimum distributions would be required, but the beneficiary could choose to take only the minimum each year.

This would maximize the tax deferred growth, but these distributions would be subject to regular income taxes.

Roth IRAs

Roth individual retirement accounts can provide an added level of estate planning effectiveness. Contributions into this type account would be made after taxes were paid, and any distributions that are taken would not be subject to income taxes. As it is with a traditional IRA, penalty free withdrawals could be taken when the account holder is 59 1/2 years old.

However, since the IRS already got its money, the account holder is not required to take distributions at any time. As a result, you could allow the account to grow throughout your life with your estate planning objectives in mind.

After your passing, a beneficiary that you name would assume ownership of the account. Once again, this beneficiary could stretch the individual retirement account. Mandatory minimum distributions would be required, but they would not be subject to income taxes.

Learn More About IRAs and Estate Planning

We have provided a basic overview in this blog post. To learn more about the estate planning benefits of individual retirement accounts, download our special report on the subject.

The report is free, and you can visit this page to obtain access to your copy: Free IRA Report.

Schedule a Consultation

Under certain circumstances, your individual retirement account can be an effective part of your estate plan. If you would like to discuss things in detail with a licensed professional, our firm would be glad to assist you.

We offer free consultations, and we can answer all of your questions and help you devise a personalized plan if you decide to go forward. To set up an appointment, contact us through this page: Charlotte NC Estate Planning Attorneys.