Many retirees hold both a tax-free Roth IRA and a tax-deferred traditional IRA or 401(k). The general wisdom is that the Roth is the better one to leave to your children because they can take tax-free withdrawals over their lifetimes.
But this is not always true, says an article on dailyfinance.com.
Your children could end up with a larger inheritance if you tap the Roth for your own expenses and leave the traditional IRA to them, even though they will pay tax on each withdrawal, it says.
The deciding factor is your tax rate verses their tax rate or rates.
In general, a child who has a lower tax rate than the parent will get a bigger pot of money if he or she gets most or all of the inheritance from the traditional IRA. If the child has a bigger tax rate, he or she will do better with a Roth.
The matter gets more complicated if there are more than one child with different tax rates.
If you have questions about estate planning, feel free to contact us for a consultation at (626) 696-3145.
