Many may not consider the possibilities that a Roth IRA can offer as an estate plan. But there are three advantages a Roth IRA can offer if the value of your estate is below the Applicable Exclusion Amount ($1.5 million in 2005 and $2 million in 2006 and 2007) and if one of your planning goals is to leave as much money as possible to his heirs.

Definition of the Roth IRA account

Simply put, the Roth IRA is an IRA that people make after-tax contributions to (contributions to a traditional IRA can be made with pre-tax money). When qualified withdrawals1 are made, they are entirely free of federal income taxes (state income tax treatment may vary depending on your state of residence).

Estate Planning Benefits of a Roth IRA

There are three.

1.) Pass money tax-free on income to an heir. Estate planning benefits begin with the Roth IRA’s ability to pass money to a beneficiary free of income taxes in qualified distributions upon your death, as long as the Roth IRA meets a five-year holding period .

2.) The Roth IRA prevents forced depletion in old age. Due to minimum distribution requirements (forced distributions at age 70½), many traditional IRAs can be substantially depleted if their owners live to age 80 or older. Since a Roth IRA faces no such requirements, you can continue to benefit from the tax deferral each year without needing to take distributions.

3.) Contributions can continue through any age. As long as the eligibility requirements are met and you have compensation (as defined by the Internal Revenue Code).

With a Roth IRA, you may have the opportunity to save more money for your heirs than with a traditional IRA, especially if you live a long time. Remember that IRA money, including money from a Roth IRA, that is transferred to heirs will be included in your gross estate for federal estate tax purposes.

Meet with your tax advisor and financial professional to discuss your personal situation and how a Roth IRA strategy can help you achieve your goals.

1Withdrawals of earnings from a Roth IRA are allowed tax-free five years after account creation for the first contribution. Once the five-year requirement is met, distributions will be free of federal income taxes if taken: (1) after age 59 1/2 (2) due to disability or death, or (3) for pay up to $10,000 of first-time home purchase expenses. Earnings withdrawals made before five years after the first contribution to the account that created the account for purposes not listed above will be subject to a 10% IRS penalty and taxed at ordinary income tax rates.

The information contained in this document is not intended (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of Roth IRAs. You should seek advice based on your particular circumstances from an independent tax advisor.

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This article appears courtesy of Cristina Callegari. Cristina is a registered representative offering securities through MetLife affiliated broker/dealers, including Metropolitan Life Insurance Company (member NASD) or MetLife Securities, Inc. (member NASD/SIPC). Insurance and annuities offered through Metropolitan Life Insurance Company.[He/She] focuses on meeting the individual insurance and financial services needs of people in the New York metropolitan area. Cristina can be reached at the Metropolis Financial Group office, 1979 Marcus Avenue, Suite 234, Lake Success, NY 11040, 516-326-7041.