Even though an inherited Roth IRA might be vulnerable to inheritance tax when transferred to beneficiaries, this product can be a good option for estate planning. Income taxes are paid by the account holder when contributions are made. However, if proceeds exceed permitted exemptions the IRA could be taxable.

Beneficiaries receiving an inherited Roth IRA will want to talk to a tax accountant before transferring funds into a new account or cashing out the account. There have been substantial changes to estate tax, with additional changes planned for 2012.

Establishing a Roth IRA can be beneficial for individuals that would like to reduce taxes. Due to the fact that income tax is paid at the time of contribution, accumulated money is tax-exempt, with the exception of surpassing allowable exemptions.

Beneficiaries can receive a larger sum when Roth IRAs have been established for several years. An illustration of how savings accumulate is defined in the concept of \’one dollar for ten dollars\’.

Due to the fact that contributions grow significantly while safeguarded in the IRA, overall tax savings could be as high as ten times greater then the taxable amount. Let\’s say the account holder pays 5 percent taxes on every $100 contribution.

If the IRA is in place for 20 years, the tax rate could accelerate by as much as 50 percent. Beneficiaries would save up to 45 percent in income tax because contributions were taxed at the lower rate.

An additional benefit of Roth IRAs is funds do not have to be withdrawn at a specific time. With traditional IRAs, account holders are required to withdraw money once they reach age 70-1/2.

Besides that, account holders can continue making contributions to their Roth IRA for however long they desire. This makes it possible for contributions to increase and supply additional funds to beneficiaries. Account holders of traditional IRAs have to cease contributions, which lessens available funds for beneficiaries.

Roth IRAs tend to be an exceptional investment product for creating inherited wealth for children. A good demonstration of how well this can perform was presented at Forbes magazine by William Baldwin.

Minor children can make contributions of up to $5000 annually into Roth IRAs. The contributions have to be derived from employment. However, other people can make matching donations up to the maximum amount of allowable contributions.

Funds cannot be withdrawn until account holders reach retirement age because Roth IRAs are tax-sheltered retirement accounts. Just imagine how much money can accumulate when IRAs are in place for 60 to 70 years.

Allowable contributions into Roth IRAs are determined by the account holder\’s age at the time the account is established. People under the age of 50 are allowed to contribute a maximum of $5000 per year, while people over age 50 can contribute up to $6,000.

Certain eligibility requirements have to be met in order to setup a Roth IRA. Limits are applied to gross income and computed based on the account holders marital status and the status they use when filing personal tax returns.

It\’s always a good idea to consult with a professional estate planner to assure that beneficiaries receive maximum benefits from inherited Roth IRAs. These professionals can help determine which retirement planning methods are most suitable and will provide the greatest tax savings.

Real estate investor and author, Simon Volkov, shares additional insights about setting up inherited Roth IRA accounts, along with retirement planning tips, estate planning strategies, and suggestions for maximizing personal finance at www.SimonVolkov.com.

Real estate investor and author, Simon Volkov, shares additional insights about setting up inherited Roth IRA accounts, along with retirement planning tips, estate planning strategies, and suggestions for maximizing personal finance at http://www.SimonVolkov.com.

Author Bio: Real estate investor and author, Simon Volkov, shares additional insights about setting up inherited Roth IRA accounts, along with retirement planning tips, estate planning strategies, and suggestions for maximizing personal finance at www.SimonVolkov.com.

Category: Finances
Keywords: inherited roth ira,roth ira,inherited wealth,retirement planning,tax sheltered retirement accounts