A personal finance blog dedicated discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.


Monday, February 21, 2005

Facts About the Roth IRA

For those of you who might not be familiar with the Roth IRA, here's a primer:

1. A Roth IRA does not give an upfront tax deduction like a Traditional IRA does. Instead, you put in after tax dollars today and in return you get tax free income in the future.

2. Unlike a Traditional IRA, there are NO mandatory distributions. This makes the Roth IRA a wonderful estate planning tool.

3. When a spouse inherits a Roth IRA, there are still NO mandatory distributions.

4. The inheriting spouse can name a new beneficiary. If structured properly, the new beneficiary will then be able to stretch the required minimum distributions from the IRA over their life expectancy. Best of all, there's NO income tax on these distributions.

5. The IRA owner can even name a grandchild or great grandchild as beneficiary, stretching the IRA even further.

Those are a few facts for now. In my next post, I'll show how even a small amount of money passed to a grandchild can have a real impact.