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Just about everybody will have to deal with taxes at some point in their lives. On the other hand, many people forget about having to deal with taxes after death since it does not directly affect them immediately. However, this is an important part of planning for the estate administration process in Florida and every other state. Most people’s estate planning goals will include avoiding estate tax liabilities for intended heirs.
One common instrument people use in their estate plans is an IRA, which is aimed at providing intended beneficiaries with a source of regular income via distributions from the account. There are two types of IRAs people generally choose from: a traditional IRA and a Roth IRA. Both types of IRAs are counted as a part of one’s gross estate, which means both types of IRAs may face exposure to estate taxes.
However, the Roth IRA may have an advantage when it comes to saving heirs from income tax liabilities. Usually, when a beneficiary inherits a traditional IRA, he or she will incur income tax costs upon distributing money from the account. A person can help heirs avoid this issue by converting one’s traditional IRA to a Roth IRA. The converted amount will have the income tax deducted, which means an heir will not have to worry about paying any income tax on distributions from the inherited Roth IRA.
On the other hand, estate administration laws regulating IRAs may change in the future in Florida, which could force one to change his or her estate planning strategies. This is why it is important to continually update one’s estate plan in order to reflect any changes in relevant laws. Also, updating one’s estate plan in accordance to any major life changes, such as remarrying, is essential as well.