Roth IRAs offer tax-free growth for estate planning

Ed Slott, a tax and retirement planning expert, recently discussed the advantages of Roth IRAs for estate planning. He highlighted that Roth IRAs allow account holders to access their contributions tax-free and without penalties at any time. This feature makes them versatile, especially when considering the Secure Act, which allows beneficiaries to inherit a Roth IRA and continue to grow it tax-free for up to ten years after death. Slott referred to Roth IRAs as the "Swiss Army knife of tax planning." He explained that while many see them merely as tax-free retirement accounts, they offer diverse estate planning options. For example, individuals can withdraw their contributions to help pay for education expenses without tax penalties. This can be more appealing than other options like 529 plans, which have stricter rules. In one case, a client worried about estate taxes found a way to gift $5 million from his Roth IRA to his son without incurring taxes. By converting part of his traditional IRA to a Roth, another client significantly reduced his estate tax liability. With the new rules from the Secure Act, Slott emphasized that inherited Roth IRAs can be particularly valuable. Beneficiaries can benefit from tax-free growth for ten years, making these accounts an excellent asset for heirs. For older adults contemplating whether to convert traditional IRAs to Roth IRAs, Slott advised evaluating personal financial impact. If the conversion does not hinder their standard of living, it could be beneficial, especially for heirs facing high income taxes. However, Slott warned against leaving Roth IRAs to charities. He suggested that traditional IRAs, which have not been taxed, are better suited for charitable donations. Overall, he portrayed Roth IRAs as an essential tool for effective estate planning.