A Roth IRA can be a powerful tool for passing wealth to heirs and strengthening their financial future. Here’s why.
- Roth IRA owners face no lifetime RMDs, unlike traditional IRA owners who must begin at age 73, so the account can keep growing tax-free for as long as the owner lives. After inheritance, most nonspouse beneficiaries who are not eligible designated beneficiaries (EDBs) must empty the account within 10 years under SECURE Act rules. Because withdrawals are tax-free and no annual RMDs apply in years 1–9, heirs can choose their timing. EDBs—surviving spouses, the owner’s minor children, disabled or chronically ill individuals, and those not more than 10 years younger—can often stretch distributions over life expectancy. Contributions can be withdrawn anytime, tax- and penalty-free.
- Unlike traditional IRAs, where beneficiaries* may face income taxes on withdrawals, a Roth IRA generally allows heirs to take qualified distributions (both contributions and earnings) taxfree, provided the original owner’s five-year holding period has been met.
- A Roth IRA also diversifies your heirs’ tax situation, giving them a source of funds that won’t increase their taxable income down the line.
*For beneficiaries, the five-year period runs from the original owner’s first contribution; the owner’s death itself qualifies the distribution.