• 06
  • April
    2011

If you are in an income bracket that prevents you from using a Roth IRA for your own retirement planning, you are probably also in an income bracket where you should consider using a Roth IRA as an estate planning tool.

Many people would like to have a similar estate planning situation. One reason is that a Roth IRA can be a highly beneficial tool for the inter-generational transfer of wealth.

Your heirs can find that time, plus modest regular savings, can result in significant wealth accumulation. The more time the better, so setting up a Roth IRA while your heirs are still children can be a very strong long-term investment strategy. If an investment has fifty years to grow, for example, even a modest beginning can produce a large return.

Unlike with traditional IRAs, Roth IRAs have no minimum distribution requirements, at least not until the owner is 70 1/2. This means that a child could hold a Roth IRA their whole life, never tap into it, and pass it to her or his beneficiaries on death. At that point, traditional IRA distribution minimums would apply.

Florida estate planning attorneys point out that Roth IRAs have no minimum age requirement for establishing an account. You can contribute up to $5,000 to a Roth IRA in 2011 as long as your child earned at least that much. Contributions cannot exceed your child's income for the year. They do not have to put their own income into the account.

Contributions to a Roth IRA are not tax deductible, but earnings are never taxed provided your child meets the distribution requirements-most importantly waiting until at least 59½ before tapping the account.

Source: U.S. News & World Report "How to Use a Roth IRA to Build an Inheritance" 3/28/2011