New Strategy For Passing On Your IRA

Inheritance moneyMany retired folks have both Roth and traditional tax-deferred IRAs. The conventional wisdom has been that it is better to leave the Roth to your children because they can take tax-free withdrawals over their lifetimes.

But this is not always true, says an article on

It says your children could end up with a bigger inheritance if you tap the Roth for your own expenses and leave the traditional IRA to them, even though they will pay income tax on each withdrawal.

The deciding factor is your tax rate verses your heirโ€™s tax rate or rates. The general rule of thumb is that the child who has a lower tax rate than the parent will get a bigger pot of money if he or she gets most or all of the inheritance from the traditional IRA.

If the child has a higher tax rate than the parent, the heir will do better getting the Roth.

The article details the calculations and notes that it gets even more complicated if there are two or more heirs and they have different tax rates. To make it even, each heir should receive a different amount depending on their individual tax rates.

If you have questions about estate planning, feel free to contact us for a consultation at (626) 696-3145.

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