The Law Office Of Morrison & McGrew, P.A. | Estate Planning & Strategic Asset Preservation
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Roth IRA can be important estate administration planing tool

There are various tools available for estate planning. The legal and financial instruments one chooses to utilize can make a significant difference in estate administration in Maryland and elsewhere. One of the most common concerns for people when designing an estate plan is avoiding tax liabilities for their heirs. A Roth IRA can play an important role in limiting the taxes heirs will have to pay.

Many people may already have an IRA as part of their retirement planning. However, one may want to consider converting a traditional IRA to a Roth IRA in order to achieve estate planning goals. First, conversion of a traditional IRA can help to save on estate tax costs. On the other hand, a Roth IRA can also benefit heirs even if one’s estate is not expected to incur federal estate tax liabilities.

Usually, when an heir takes distributions from an inherited IRA, the amount distributed is liable for income taxes. Therefore, the heir will only be able to utilize the after-tax amount of the distributions. When one converts a traditional IRA to a Roth IRA while a person is still alive, the income tax liabilities are automatically taken from the converted amount. Hence, one’s heirs will not have to worry about paying income taxes since one has already paid the income tax in advance.

However, estate tax liability is only one aspect in planning for estate administration in Maryland. One should also ensure that assets are properly distributed to the intended heirs. Without the proper legal language in one’s will and other estate planning documents, the estate plan can be challenged in probate court. This could result in assets being distributed to unintended parties.

Source: Investing Daily, “Estate Planning with Roth IRAs“, Bob Carlson, April 25, 2014


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