Reduce Your Beneficiary’s Taxes

Death and taxesThere’s considerable talk about potential tax reform in Washington.  It is anyone’s guess what that will look like in the end.

Taxes must be a significant concern for those who are doing estate planning in order to pass on their assets to their loved ones. Wise estate planning means you can avoid having a big part of the money you leave your heirs devoured by income taxes. It is a way to move that money to a nontaxable form.

The money you put into a Roth retirement savings account has already been taxed. It was taxed on the contributions you made or as a rollover from a tax-deferred retirement savings account. As a result, everything in that account is now non-taxable for income-tax purposes. So long as the Roth has been open for at least five years prior to your death, the money in that account is won’t be subject to federal income taxes.

In the event you leave the money in your Roth rather than spending it in your retirement, after your death the account will be transferred to the person you designated as a beneficiary. At that point, the Roth account will be subject to the IRS's rules for inherited IRAs.

The beneficiary must then begin to take distributions based on their predicted lifespan (pursuant to the IRS’s actuarial tables). If your beneficiary doesn't simply blow the money in the account right away, the balance in the Roth will continue to grow tax-free, providing them with some untaxed income in the future.

This estate planning strategy works if you don't spend the money in the Roth account yourself. As a result, it's important to plan and find other sources of income to finance your retirement, leaving the Roth account for your heirs.

If you didn't set up a Roth account for yourself before you retired, don't worry, you can execute a Roth conversion at any age.

Reference: Motley Fool (September 14, 2017) “A Clever Way to Cut Your Heirs' Income Taxes”


Like this article?

Share on facebook
Share on Facebook
Share on twitter
Share on Twitter
Share on linkedin
Share on Linkdin
Share on pinterest
Share on Pinterest

Leave a comment


We have a LOT more where that came from!

We hate spam too. We will never share or sell your information.

Call Now ButtonCall Us Now https://jsfiddle.net/7h5246b8/

Request a free consultation

We hate spam too. We will never share or sell your information.

We've been putting together as many resources as possible so that we can continue to help:

  • If you’re a current client with a signing appointment or a prospective client with a consultation and would prefer that meeting take place in your own home, we can accomplish that with a little bit of pre-planning on our part and with the addition of a laptop, smartphone, tablet or other computer in your home to facilitate this virtual meeting. For those of you that need to sign legal documents, that too can be accomplished with the use of a webcam (FaceTime etc.), so that we can witness and electronically notarize all of your important legal documents.
  • We launched the rollout of our on-demand webinar early so that new clients and our allied professionals can view the important component parts of ‘an estate plan that works’ at their convenience.  That is available on our website.
  • Live video workshops will be produced as quickly as possible and certainly ahead of our previous schedule; we will keep you posted as these events become available. Given the ‘boutique’ nature of the firm, we rarely have more than ten people in our office including team members at any one time. During this period of ‘social distancing,’ we promise to have no more than 8 people at any time.   This allows us to comply with the Governor’s directive to limit in-person gatherings.
  • The best way to communicate with us is still by phone during regular office hours of 8:30 to 5:00, Monday through Friday, or, you can email any of our team members (that is, their first name followed by @zarembalaw.com).  We will respond to these emails as quickly as possible.
  • Please continue to follow the directives of our local, state, and federal agencies. For your health and in consideration of our team who is assisting you, if you’ve scheduled an office appointment or planned to drop off paperwork and are experiencing a fever, dry cough, or shortness of breath, please contact your primary care doctor for guidance and then our office to reschedule.

Thank you, Walt and the Zaremba Team

Update to our Process

The unprecedented coronavirus pandemic has taken our entire country by surprise. We understand how difficult this time is for America’s businesses and families.  However, we believe it is vitally important that we make every effort possible to continue to offer solutions that avoid disrupting our important partnership with you, your family and friends.  As you know, estate planning is not something that should wait for a more convenient time, therefore the opportunity to address your important goals both during and after this crisis should not wait.  To that end, we have added the option of a ‘virtual consultation’ to our office process.  You will now have a choice of either meeting with us in our office or in the comfort of your own home.