This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
If you’re looking to minimize taxes for your beneficiaries down the road, a Roth conversion is worth consideration.READ THE ARTICLE
Stretch IRA elimination: Upon being passed in 2020, The Secure Act changed the rules for leaving traditional IRAs to beneficiaries, reducing tax benefits. Prior to the Secure Act, inherited IRA beneficiaries could “stretch” distributions and tax deferral over their lifetime, but now they must empty the account within 10 years, with some exceptions.
The workaround: Roth IRAs, however, maintain an advantage because they have no required minimum distribution (RMD) rules throughout your lifetime. This means beneficiaries can wait until the 10th year to empty the account, allowing tax-free growth for another decade. Further, Roth IRA beneficiaries can enjoy tax-free distributions, as the original owner paid taxes on contributions during their lifetime.
You have much to gain (and much to minimize in taxes) by leveraging Roth conversions throughout your life, as well as your beneficiaries’. However, in order to truly make this work for your unique financial situation, a comprehensive tax strategy is key.