When setting up an IRA, there is one very important decision people need to make. That is whether they want to be taxed now or later.
In a traditional IRA, money is put into the account. No income tax is paid on that money until the money is withdrawn from the account, which people are eventually required to do after they reach a certain age.
However, in a Roth IRA, money put into the account is subject to the current income tax. Money is not taxed later, when it is taken out of the account.
This makes inheriting a Roth IRA quite beneficial, as Market Watch explains in "Want to make that inherited IRA last longer? Here's how."
If the beneficiary of the inherited Roth IRA takes out a required minimum distribution by December 31 of the account creator's death, then the account can be stretched out over time. As long as a required minimum distribution continues to be taken, the account can grow and continue to be tax free.
On the other hand, if money is not taken out by that initial December 31 deadline, then all funds must be taken out within five years of inheriting it.
When you make your decisions about what type of IRA to get, you might want to consider how it will affect your heirs.
A Cincinnati estate planning attorney can assist you in figuring out how your IRA decisions can function with your overall estate plan.
Remember: “An ounce of prevention is worth a pound of cure.” When making your estate plans or when probating an estate or administering a trust, do not go it alone. Be sure to engage a Cincinnati estate planning attorney.
For more information about estate planning, probate or trust administration in Cincinnati (and throughout the rest of Southwest Ohio) and to review free resources regarding estate planning, probate or trust administration, visit my website. If you have questions regarding this article or a particular legal matter, feel free to contact me at 513-399-PLAN (7526).
Reference: Market Watch (Sep. 22, 2017) "Want to make that inherited IRA last longer? Here's how."