Retirees, Consider This Valuable New Strategy for Passing IRAs to Your Heirs

Depending on the tax rates of you and your children, a traditional IRA may net a larger inheritance.

Many retirees hold both a tax-free Roth IRA and a tax-deferred account, such as a traditional IRA or a 403(b). And it’s now a mantra among many financial advisers that the Roth is the better account to leave to your children because they can take tax-free withdrawals over their lifetimes.

But this may not always hold true. Your children could end up with a bigger inheritance if you tap the Roth for your own expenses and leave your traditional IRA to them, even though they will pay income tax on each withdrawal. The deciding factor: your tax rate versus your beneficiary’s rate, according to a recent study in the Journal of Personal Finance.

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Susan B. Garland
Contributing Editor, Kiplinger's Retirement Report
Susan Garland is the former editor of Kiplinger's Retirement Report, a personal finance publication whose subscribers are retirees and those approaching retirement. Before joining Kiplinger in 2006, Garland was a freelance writer whose work appeared in the New York Times, the Washington Post, BusinessWeek, Modern Maturity (now AARP The Magazine), Fortune Small Business and other publications. For 12 years, Garland was a Washington-based correspondent for BusinessWeek, covering the White House, national politics, social policy and legal affairs. Garland is a graduate of Colgate University.