Roth IRA Conversion And Your Estate Plan

You have heard of an IRA right? IRA stands for individual retirement plan. You are in charge of putting money into your IRA. The advantage is that the money you put into your IRA can be deducted from your taxes. You pay taxes on your earnings after you withdraw them after you retire. A Roth IRA conversion may be a good idea for your estate planning purposes.

With a traditional IRA you determined how your money is invested. But when you reach seventy and one half years of age you must start drawing from your IRA. Your age of life expectancy is how it is determined how much by percentage you then have to draw out each year.

The idea is that all the money in the IRA will be spent by the time one passes. You can take out more than the required amount minimum if you want to so that you zero out your IRA. All the cash left however will transfer to a named person, persons or as legally referred to as beneficiaries. You need to name the beneficiaries on every account form. Those monies can be paid in installments or in one payout. This is where estate planning comes into play. So you do want to consider leaving your heirs some of your IRA or spending it all yourself.

Another option you now have is the Roth IRA. It started in 1998 and named after Senator William Roth. The Roth IRA is different from the regular IRA. You contribute to the Roth IRA with taxed money. And like the regular individual retirement plan your contributions are let to build without being taxed. It is taxed on withdraw however.

However upon withdrawal no more tax will be taken if the money was in the Roth IRA for at least 5 years. Let us look at how the Roth IRA applies to living trusts creation. You do not have to begin taking money out of the Roth IRA when you reach seventy and one half years of age like you do with a regular IRA. Actually you can still put money in after you reach seventy and one half years of age and let that money stay there for the beneficiaries of your estate. Your heirs will really like this idea.

The penalty for taking out money before you reach the age of fifty nine and a half does hold true however for a Roth IRA. But there are many exceptions. No penalty if you are disabled. No penalty if monies are paid to a beneficiary upon the death of the person. For a first time home purchase you may take funds out without be penalized for yourself, or a first time home for your child, grandchild and even your parent or parents.

Roth funds can go towards your expenses for school. Or for school for your children, grandchildren, spouse or your spouse's children or grandchildren. Yearly contribution limits are the equal of the traditional IRA limits. But individuals are the equal of the traditional limits of the IRA. But people who make more than a certain amount are kept to lower amounts.

An IRA is a great way to save money for retirement. Because of the tax advantages look at the Roth IRA. Also, make sure you work with an experienced estate planning attorney who will help you create the right living trust for you. Also have a financial planner make sure you do a proper Roth IRA conversion.