Benefits of Roth IRA
The Roth IRA is basically a type of IRA that people make regular contributions on using pre-tax money. The qualified withdrawals are exempt from the federal income tax. There are various benefits offered by a Roth IRA, particularly if you plan to leave a large amount of money to your heirs.
Using the Roth IRA, a person has the chance to save even more money for the beneficiaries in comparison with the traditional IRA, particularly if you live for a long time. Keep in mind that the money in the Roth IRA will also be included in your gross estate for tax purposes.
1. Income tax-free inheritance
The Roth IRA has the ability of passing money to the recipient income tax-free at your death on qualified distributions. It is vital that you understand that this will only happen once the Roth IRA has satisfied a 5 year holding period.
2. No reduction in old age
The best thing about Roth IRA is that there is no forced reduction at old age. Because of the minimum requirements of distributions, most traditional IRAs might be significantly reduced if their owners live beyond 80 years. On the other hand, Roth IRA does not face such a requirement and thus it can continue benefit from tax deferral every year with no need to take distributions.
3. Contributions can continue regardless of age
Provided you have compensation and all the eligibility necessities are met as defined clearly by the IRA, then contributions can continue through any age. Make sure that you consult a financial professional to deliberate your personal situation as well as how the Roth IRA strategy will assist you meet your financial goals.
The disadvantage of using the Roth IRA is that you are not going to focus on present financial investments since you will be making your contributions to the Roth IRA. Apart from that, your heirs might become lazy and resign from their jobs since they know that they will get a lot of money once you pass away.