Estate Planning with IRAs
Let’s talk traditional IRAs. A traditional IRA, or individual retirement account, is a personal retirement account that offers certain tax benefits. Number one, contributions may be tax deductible. Number two, while your money is inside the IRA, it grows tax-deferred. This is probably the biggest advantage of using an IRA since your money can grow more effectively due to the compounding of interest. Because you are not paying any taxes on any gains within the IRA, the IRA will have a larger principal on which the gains can compound. Finally, when you take money out of your IRA, the amount you take out is treated as ordinary income for income tax purposes. The last thing to mention is that because the money you pull out is taxed as ordinary income to you while you are alive but it is also taxed ass ordinary income for you heirs after you’re gone. Your estate plan therefore can help reduce the taxation of your retirement accounts for your beneficiaries.