RCL Capital Management

A Certified Financial Advisor serving investors in greater Pittsburgh, Pennsylvania – Wexford, Cranberry, Marshall, Bradford Woods, Pine, Richland, McCandless, Ross – and beyond since 1997.

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Roth IRA Estate Tax Considerations

Converting your IRA to a Roth IRA has estate tax benefits that should be evaluated especially if you are unlikely to utilize the Roth IRA account balance during your lifetime.

On October 30th of this year, I posted an entry to this site discussing several items that should be considered in evaluating whether to convert your IRA to a Roth IRA.  One of the items discussed is whether the account owner plans to withdraw the account balance during their lifetime.  This issue is important because of the potential estate planning opportunities for a Roth IRA.

The estate planning benefits are possible because a Roth IRA is not subject to required minimum distributions that are an IRS requirement for traditional IRAs.  Therefore, the account owner can allow the account to grow tax free during their lifetime and then leave the account to their heirs upon their passing. 

Roth IRA distributions are not subject to income taxes to either the owner or their heirs. Although the value of the Roth IRA might be subject to estate tax, the account will grow tax free as long as the assets are not distributed to either the account owner or their heirs.

The estate planning strategy is for an account owner to convert an IRA to a Roth IRA and pay the income tax on the conversion immediately.  The Roth IRA then grows tax free for the remainder of the account owner's life and for a significant portion of the lifetime of the heirs as well.  Therefore, it is not unreasonable for a Roth IRA account to grow tax free for as many as 60 - 70 years.