If you’re familiar with investing, you may know that the Roth IRA is a great retirement-savings vehicle. But are you aware that some of its benefits can pay off for the next generation?
When you contribute to a Roth IRA, your earnings have the potential to grow tax free, provided you don’t start taking withdrawals until you’re 59-1/2 and you’ve had your account at least five years. Your contributions aren’t taxed when withdrawn because you’ve already paid taxes on the money you put in. The potential for tax-free earnings can continue when your beneficiaries inherit your Roth IRA, though you’ll need to consult with your tax advisor on this issue.
You can also contribute to your Roth IRA for as long as you have earned income, up to the contribution limits, and as long as you meet certain income limitations. Even if you’ve officially “retired,” you might work part-time. So you could put your earnings into your Roth IRA. This ability to keep funding your Roth IRA can give you more flexibility in managing your retirement income.
Unlike a traditional IRA or a 4001(k), a Roth IRA does not require you to start taking minimum distributions at age 70-1/2. You are never required to withdraw money from your Roth IRA. By leaving your account intact for as long as possible, you’ll potentially have more money available for a variety of options — one of which may involve leaving sums to your beneficiaries. Your non-spouse beneficiaries must take annual required minimum distributions, but they have the option to take distributions over their lifetime.
Your Roth IRA is part of your estate for purposes of federal estate taxes. In 2012, your estate would be subject to these taxes if it were worth more than $5.12 million (or less, if you made certain gifts). In 2013, however, this amount is scheduled to drop to $1 million unless Congress acts on this issue. (Some states also have estate taxes that apply at amounts less than the federal amount.) If you have a sizable estate, you should consult with your tax and legal advisors.
When you invest in a Roth IRA, your goal is to help fund your retirement. All your decisions regarding your Roth IRA — how much to contribute, where to invest the money and when to begin taking withdrawals — should be based on your retirement goals. However, as a side benefit to investing in a Roth IRA, you may find that you could help the next generation, or two, of your family.
This article was written by Edward Jones for use by your local Edward Jones Financial Advisor.
Edward Jones, its employees and financial advisors are not estate planners and cannot provide tax or legal advice. You should consult your estate-planning attorney or qualified tax advisor regarding your situation.Information provided by Jim Talley, financial advisor at Edward Jones, 2703 Beaver Ave., 279-4179.