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Avoiding Los Angeles County Probate with a Roth IRA

| Jan 9, 2019 | Estate Planning, Probate |

Roth IRAs are financial accounts that provide excellent retirement planning tax benefits and can help avoid probate here in Los Angeles County. For tax planning purposes, you should know that:

  • The contributions made to a Roth IRA are not tax deductible, which is different from other, more traditional retirement accounts
  • Distributions are not taxed if they’re made by the time you’re at least 59 ½ or if the account has been open for more than 5 years
  • Income tax is paid when the contributions are made, which means withdrawals can be made tax-free
  • Unlike other retirement accounts, Roth IRAs do not have required minimum withdrawals

The lack of required minimum withdrawals make Roth IRAs perfect for avoiding Los Angeles County probate, as long as you follow these two steps:

  • Your savings must accumulate tax-free in a Roth IRA indefinitely
  • You must name a beneficiary to your account

When you pass away, the account will go to the beneficiary named on your account and the assets held in the Roth IRA will not have to go through the probate process. However, one important thing to note here is that you should regularly check your beneficiary designations to ensure they’re up-to-date. This is due to the fact that if your beneficiary predeceases you and there are no additional beneficiaries, the Roth IRA becomes part of your probate estate.

There are some limitations to Roth IRAs, though. As of 2018, individuals under the age of 50 may only contribute up to $5,500 a year, while people 50 and over can contribute $6,500 a year. You may also only contribute to a Roth IRA if your income is below $135,000 (single filer) or $199,000 (married joint-filers). Your contribution limits will decrease as you move further up the threshold.

You should also note that you may also have to pay either income taxes or early distribution taxes if you make unqualified distributions; that is, early withdrawals. However, you may be eligible for a tax-free distribution if the withdrawal is made to purchase your first home or if the money is needed due to a disability.

If you would like to get more information about the benefits of planning to avoid probate with a Roth IRA, or if you’d like to have your current asset protection plan reviewed to make sure it still fits your needs, please set up an appointment at our San Fernando Valley trust and estates law firm by calling (818) 905-6088.

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