Securing Your Wealth Through IRAs

Individual Retirement Accounts (IRAs) and Roth IRAs are important tools to help you save for a secure financial life. They can also be used to pass down assets to your beneficiaries, whether they be family members, friends or charitable organizations.

Both a Traditional and Roth IRA can be used to supplement Social Security and pension plan benefits. As discussed in our IRA Overview: Traditional and Roth IRAs section, Traditional IRAs offer a number of benefits, including tax-deferred compounding and potential tax deductions. With a Roth IRA, there are no up-front tax deductions, as contributions are made with after-tax dollars. But Roth IRA distributions after age 59½ generally aren’t taxed if certain conditions are met.

Many people find these accounts to be useful estate planning tools. Beneficiaries who inherit a Traditional IRA can cash it all in at one (and potentially incur a large tax bill), or make withdrawals in installments over a lifetime. By making withdrawals over time, the account continues to grow tax deferred and can potentially result in a much larger legacy.

If you do not need income from your IRA during retirement, but would rather leave it to a beneficiary, consider a Roth IRA. If you're eligible to make annual contributions to a Roth IRA, you may want to consider transferring or “converting” an existing Traditional IRA to a Roth IRA. Any deductible contributions and earnings converted from a Traditional IRA are subject to income taxes during the year of the conversion. However, if you convert to a Roth IRA and pass it down, your beneficiary may not have to pay current income taxes on the inherited amount.

Action Steps

If you're considering using a Traditional or Roth IRA as an estate planning tool, it is strongly recommended that you consult with your financial professional, as well as your accountant and estate planning experts. They can recommend the most appropriate strategy for both you and, ultimately, your beneficiaries. MainStay Investments does not offer tax advice.