Retirement planning can involve contributing money into an individual retirement account. With a traditional IRA you contribute money before paying taxes. You can deduct your contributions from your earnings when you are filing.

There is a limit regarding how much you can contribute into a traditional individual retirement account during any given year. In 2013 this amount is $5500. If you are 50 or older this maximum contribution increases to $6500.

Assets placed into the account grow without the earnings being taxed. You start getting taxed when you begin to withdraw funds. You can do this when you reach the age of 59.5 without penalties.

Under federal guidelines you must begin to take distributions when you are 70.5 years of age, and the amount you must take is based on your anticipated lifespan. Because of this there may not be anything left when you pass away to leave to your heirs.

Roth individual retirement accounts are set up differently, and they can be a useful estate planning tool. With these accounts you make contributions with earnings after they have been taxed. Because of this, you are not taxed if you extract funds from the account after retirement.

The feature of these accounts that makes them a viable estate planning tool is the fact that you don’t have to take mandatory minimum distributions when you reach any particular age. Because of this the assets that have been placed into the account can continue to grow tax-free throughout your life.

When you pass away a beneficiary or beneficiaries that you name when you open the account assumes ownership of these funds. The beneficiaries could continue to take maximum advantage of tax-free growth by accepting only mandatory minimum distributions.

These distributions are compulsory for the beneficiaries though the original account holder does not have to take money out of the account during his or her life.

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Ryan M. Denman and Dennis D. Duffy

Duffy Law Office, PLLC