When A Roth IRA May Actually Be A Terrible Asset To Inherit | Nerd's Eye View by Michael Kitces

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The tax-free nature of growth on a Roth IRA makes it a highly appealing investment account to hold, and a similarly appealing type of account to inherit. All else being equal, it’s clearly better to be the beneficiary of an account that will never be taxed, than one that will be taxed over time.

However, the caveat to leaving a Roth IRA as an asset to inherit is that doing so implicitly means that the original IRA owner will have paid taxes to get money into the account, either through systematic contributions spanning many years, or possibly through a large Roth conversion (or a series of partial Roth conversions over time). Which means the benefit of inheriting a Roth IRA is actually more nuanced – if the IRA owner pays “too much” in taxes to create the Roth, the beneficiary may have been better off to simply inherit a traditional IRA and pay the taxes themselves instead!

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