But don’t give up just yet, Fidelity says. Even if your earnings turn out to be over the limits, you can still take advantage of the Roth by converting money from a traditional IRA or 401(k) into a Roth.
And, while at Geyer Law we offer neither tax nor investment advice, we believe Roth IRAs definitely deserve a place in estate planning discussions, for a variety of important reasons:
- Earnings in a Roth IRA are tax free.
- You may contribute to a Roth even if you have a 401(k) or 403(b) account.
- Withdrawals are never required.
- After age 59 ½, you do not pay tax on “qualified withdrawals” (the account was opened more than five years ago or the balance is being paid to a beneficiary after your death).
- When you die, while your Roth account may be subject to estate tax, your beneficiaries will not pay any income tax on the distributions.
- Note that the beneficiary designation on your Roth IRA account is going to supersede anything in your will or trust (meaning the Roth planning needs to be coordinated with your overall estate plan).
- Your beneficiaries have the choice of rolling over the money into an inherited Roth IRA. The assets would continue to grow non-taxed but distributions are required. (The heir would name his or her own beneficiaries for the new account).
- By Dec. 31 following your death, the beneficiary would need to begin taking withdrawals based on his/her life expectancy. If you had named more than one beneficiary, the oldest beneficiary’s life expectancy would be used in the calculations.
The Roth may in fact be the only IRA that “doesn’t care how old you are” when it comes to contributing. On the other hand, as we well know at Geyer Law, reaping all the Roth’s tax and estate planning benefits takes careful and thoughtful planning and legal expertise.
- by Ronnie of the Rebecca W. Geyer blog team