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Can I Use IRAs Instead of a Will?



The invention of the Roth Independent Retirement Account (Roth IRA) changed a lot of the rules about IRAs. Originally IRAs were funded by money that was not taxed and that accumulated tax-free over your life. Taxes would be paid when you retired, and hopefully you had less of a tax bill than when you were working. Traditional IRAs did not work for everyone. People who would be making more money when they used the money in retirement would have to pay more taxes. Also, traditional IRAs required you to take the money by a certain age.

The Roth IRAs changed this. They are funded with after-tax contributions; therefore you do not have to pay taxes when you make a withdrawal. Also, there is no requirement that you withdraw the money at a certain age. You can actually leave your Roth IRA alone until after you die. What happens then? You can name a beneficiary to receive all the funds after your death. This means that the money goes directly to the person or persons you named, independently of any will and without having to go through probate court. Generally, your beneficiary will need only a certified copy of the death certificate to receive the funds.

Because of this feature, some have asked if you can use a Roth IRA instead of a will. The answer, as usual, depends on what you leave behind after you are gone. If the sum total of your estate will be the contents of your Roth IRA, the answer is yes. However, most of us have other things that need to be taken care of after our death. Your house, other bank accounts, and investments that are not in a Roth IRA need to be distributed via a will or through the more complicated procedure of a trust. Also, instructions as to the guardianship of minor children and the naming of an executor to see that your beneficiaries receive what you want them to cannot be handled through a Roth IRA. So although a Roth IRA can be a simple way to pass on funds without probate after your death, anything more detailed should be dealt with by using a will.