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.
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.