5 Advantages of Roth IRAs- #4-Pass to Heirs Tax-free

Wealth Strategist

The fourth advantage of a Roth IRA is its tax-free inheritance benefit. Unlike a traditional IRA where heirs are required to distribute the account within ten years, subjecting those distributions to taxation, a Roth IRA allows for completely tax-free transfers to heirs. For instance, if you passed on a million-dollar Roth IRA to your heirs, they would still need to withdraw it over a ten-year period, but all those distributions would remain tax-free, preventing any risk of pushing your heirs into higher tax brackets. This makes a Roth IRA an attractive option for preserving wealth and passing it on to the next generation with minimal tax consequences.

Video Transcript

Fourth advantage to a Roth IRA is that they pass to heirs completely tax free. So again, let’s say you had a $1 million traditional IRA and you passed it along to your heirs. They’d be forced to fully distribute the account inside of a ten year period, and all of those distributions would be taxable to your heirs.

So again, let’s say you had a million dollar IRA, passed it on to your heirs, and they took out a $100,000 distribution in that first year. That would count as $100,000 of income for your heirs, which could bump them up into the next tax bracket.

If that account was a Roth IRA, for example, all $1 million would pass completely tax free. Your heirs would still have to take it out over a ten year period, but all of those distributions would be tax free and would not be subject to bump them up into another tax bracket.

 

Show Full Transcript

Playlist

5 Advantages of Roth IRAs

5 Advantages of Roth IRAs- #1-Tax-Free Growth and Distribution
5 Advantages of Roth IRAs- #2-Access Contributions If You Need To
5 Advantages of Roth IRAs- #3-No RMDs
5 Advantages of Roth IRAs- #5-Asset Location

Recommended Videos

Refinancing Your Home Mortgage
Maximizing Investment Returns with Tax Loss Harvesting
2023 Annual Limits
Firm Philosophies on Bitcoin and Concentrated Stock Positions
10 Mistakes That Retirees Make and How to Avoid Them: Tip 10 - Relying on "Common Knowledge"
Investing with Emotions