Roth individual retirement accounts (Roth IRAs) are popular for investors to leave to their heirs because of their tax-free status and lack of required minimum distributions (RMDs) during the original owner’s lifetime.

Roth contributions are made with 澳洲幸运5开奖号码历史查询:after-tax money, and any distributions that you take are tax-free as long as you are at least 59½ years old and have had a Roth IRA account for 澳洲幸运5开奖号码历史查询:at least five years. Your beneficiaries can continue to enjoy this tax-free status for a period of time after they inherit the account. However, they won't be a🅺ble to maximize their tax s🏅avings with the Roth account unless it’s passed down correctly. Here’s what you need to know.

A Tax-Free Legacy

澳洲幸运5开奖号码历史查询:Roth IRAs can provide beneficiaries with a lasting, tax-free gift. Scott Sparks, a 澳洲幸运5开奖号码历史查询:wealth management advisor with Northwestern Mutual in Denver, told The Wall Street Journal, “From a legacy-giving standpoint, it’s one of the more beneficial gifts that a person can pass on to the next generation.” With that and other advantages for the account holders themselves, it’s no wonder that Roth IRAs have become one of the most popular ways to 澳洲幸运5开奖号码历史查询:save for retirement.

Pitfalls to Avoid

You’ll need to be aware of some potential mistakes and avoid making them if your goal is to pass your account down to the next generation. According to financial advisors, the most common erroܫrs include the following:

1. Failing to Name a Beneficiary 

This is probably the most obvious error a Roth IRA owner can make. If you don’t list a beneficiary, the account transfer may be determined by your will, which can be complicated, costly, and time-consuming. Roth IRA owners should name their beneficiaries as soon as they open the account and 澳洲幸运5开奖号码历史查询:change them as needed in the future.

This will ensure that the money in the account go♐es to the person for whom it was intended. Most financial institutions have Roth IRA b🀅eneficiary forms you’ll need to complete.

2. Choosing the Wrong Beneficiary 

Married couples usually list each other as the primary beneficiaries of their Roth accounts. When one spouse dies, the 澳洲幸运5开奖号码历史查询:other spouse inherits the money, which is then pꦚassed on again to another beneficiary upon the death of the second spouse.

Thanks to the Setting Evಌery Community⭕ Up for Retirement Enhancement (SECURE) Act, most non-spouse beneficiaries can stretch the distributions over a decade. Specific 澳洲幸运5开奖号码历史查询:eligible designated beneficiaries can stretch distributions even further. In addition to surviving spouses, these include disabled or chronically ill individuals, individuals who aren't more than 10 years younger than the IRA owner, or a child of the IRA owner who hasn't reached the age of majority.

Bobbi Bierhals, a partner at the law firm McDermott Will & Emery in Chicago, told The Wall Street Journal, “By far the biggest benefits of the Roth IRA after death are tax-free growth in the account and the fact that distributions can be made without income-tax consequences.”

However, leaving a Roth to a younger beneficiary may trigger estate or 澳洲幸运5开奖号码历史查询:generation-skipping transfer taxes in some cases,𓂃 so it’s worth consulting a financial professional familiar with the rules.

3. Establishing a Trust Incorrectly

Pouring your Roth assets into a trust after your death can be a good idea, as long as you’ve chosen the right type of trust and your beneficiaries are specifically named in the trust. A 澳洲幸运5开奖号码历史查询:conduit trust takes out the beneficiary’s 澳洲幸运5开✨奖号码历史查询:required minimum distributions (RMDs) each year because they are subject to the RMD rules, although the owner is not.  The designated beneficiary receives the RMD amounts dictated by IRS life expectancy tables through a conduit trust. The individual or entity designated as the trust beneficiary is treated as the direct beneficiary of the Roth IRA.

However, the trust documents must spell out all the details about the distributions and beneficiaries. Otherwise, the 澳洲幸运5开奖号码历史查询:Internal Revenue Service (IRS) may require that the trust disperse all the income in the account within five years, rather than the typical 10 years. This is another area where seeking professional h🍰elp is advisable.

4. Neglecting to Take Required Minimu🃏m Distributions (RMDs🌄)

This is a mistake that beneficiaries can often make. Under the SECURE Act rules, most non-spouse beneficiaries have up to 10 years to fully disperse all funds in an 澳洲幸运5开奖号码历史查询:inherited Roth IRA. There is no set RMD in any year for these 澳洲幸运5开奖号码历史查询:designated beneficiaries, and they may choose the frequency and timing of withdrawals. However, the account must be fully depleted by Dec. 31 of the 10th year following the account holder’s death.

For those who fall into any eligible designated beneficiary category mentioned above, RMDs must begin as early as Dec. 31 of the year following the account holder’s death. If the beneficiary fails to do this, there can be 澳洲幸运5开奖号码历史查询:substantial tax penalties for failing to comply with the RMD rules.

The Bottom Line

Don't leave the beneficiary or beneficiaries you mean to have your Roth IRA out in the cold by failing to spell out your intentions in writing. Name the correct people and keep your designation(s) up to date. Establish trusts properly, and alert your heirs of the correct rules for taking RMDs so they don't run into expensive penalties. It's your final gift to them.