Even Inherited Roth Is Better
An Individual Retirement Account or IRA is a type of investment vehicle which is specifically designed for the retirement of employed individuals. There are plenty of IRA plans available, and one of the most popular plans is the Roth IRA, which is most preferred by many individuals. All employed individuals may make contributions to an IRA of any type, provided that they earn taxable income during the year. This income may be in the form of salaries, wages, service fees, tips, commissions, bonuses, and such. And all IRA plans have a variety of rules and regulations that govern the account. Obviously, the IRA holders must know the rules by heart. If a person plans to open a Roth IRA, he must be familiar with the Roth IRA rules so to get the maximum benefits that this account could provide.
When an IRA owner dies, the funds will go to a beneficiary — whether a spouse beneficiary, or a non-spouse beneficiary. According to the beneficiary IRA rules, the IRA holder may designate more than one beneficiary. He just have to state what percentage of his IRA funds each beneficiary will receive. The IRA holder may change his mind about his beneficiaries at any time.
If the beneficiary is the spouse of the IRA owner, the spouse may choose to treat the IRA as his or her own. Thus, he or she must make contributions and withdrawals as if he or she is the owner of the account, even if he or she is not the original owner. On the other hand, if the beneficiary of a Roth IRA is not the spouse of the original Roth IRA owner, this beneficiary may either receive smaller distributions over his or her entire life or receive the entire account balance within five years after the death of the original owner. Non-spouse beneficiaries are not allowed to treat the IRA as their own — which means that they cannot contribute any more money into the IRA plan or combine such inherited Roth IRA with another existing Roth IRA plan.
Income tax is not due on an inherited Roth IRA, subject to the same income tax rules for the original Roth IRA owner. Withdrawals from a Roth IRA that are made by beneficiaries below the age of 59 1/2 are not subject to penalty.
Filed under: Uncategorized on December 14th, 2011
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