Traditional IRAs give you the chance to defer tax payments until retirement, which can make them an important investment vehicle. However, in some situations, it may actually be better to pay taxes now, especially if you’re planning on leaving those funds to an heir. Converting your traditional IRA to a Roth account can have several beneficial effects on your estate plan.

What Is a Roth Conversion?

A Roth conversion allows you to convert a traditional IRA account to a Roth IRA. While this does require you to pay taxes at the time of the conversion, all of the funds you’ve saved will then be able to grow tax-free. Roth IRAs also aren’t subject to mandatory minimum distributions, so your wealth can keep growing for longer.

When Should You Consider a Roth Conversion?

Paying taxes on your retirement savings now can save thousands of dollars if you plan on being in a higher tax bracket after retirement. This is a common situation for those who haven’t yet reached their full earning potential or may not need to tap into their IRA after retirement.

If you plan on leaving your IRA savings to an heir, a conversion can also reduce their tax liability, maximizing the wealth you’re able to pass on.

Why Are Roth Conversions Beneficial for Estate Planning?

Unlike traditional IRAs, Roth IRA earnings aren’t subject to tax when you make disbursements. Even if you leave the account to a spouse or other family member, they won’t be required to pay income tax on those funds when making withdrawals. These accounts also allow you to pass your entire retirement savings to your heirs. This feature is especially important if you have a diversified portfolio and may not need to access your IRA savings in your lifetime.

Estate planning can be confusing and overwhelming, which is why families throughout High Point, NC, turn to Cecil, Cecil & Barker PA. They have over 65 years of combined experience in the legal field and will take the time to create customized solutions tailored to fit your needs. Visit their website for more on their estate planning services, or call (336) 883-8383 to schedule a consultation today.