In Chapter 2 you learned about the advantages of using Roth IRAs for your retirement planning. One of the features of a Roth IRA that ties in nicely with estate planning is that there is no minimum withdrawal requirement as there is with other IRAs. This feature enables your account to continue growing, tax free, accumulating interest as you cruise past age 70½, the magic point to begin required withdrawals from most other retirement vehicles. If you do not anticipate needing the monies in a Roth, it can set up a very nice inheritance for your named beneficiary.

Here is an example of how money could flow through a Roth IRA as part of your estate plan. At age sixty-six you have been retired and your income is under $100,000. You can convert money from a traditional IRA to a Roth IRA. You will pay income tax at the time of conversion, but from that point forward the opening amount and the earnings will grow tax-free. If you die at age seventy-five your wife inherits the Roth IRA tax free. She can reestablish it in her name as sole owner and name your adult son as her beneficiary. Your wife keeps it for another eight years until her death, making no withdrawals. Your son inherits the Roth IRA at age fifty-eight. His actuarial life expectancy is another twenty-two years. At this point, in a secondary level of inheritance, he is required to begin receiving regular minimum withdrawals for twenty-two years. He only takes the minimum, however, extending the tax-free earning power as long as possible.

The beauty of using the Roth IRA in an estate plan is that it enables you to keep money tucked away with tax-free earnings. If you do not need these proceeds to live on, it can be very annoying to be compelled by tax laws to take income you do not want. This way, you can chart a path protecting those dollars for your heirs.