Are ROTH IRAs part of our estate valuation

[Paolooch]

One would think the IRS site would have a simple answer to . . . oh, wait a minute.  IRS.  Never mind.

When we die and our estate passes on to our children, is the value of our ROTH IRAs included to determine if the estate will be taxed?  I know, or at least think I know, that our children won't have to pay inheritances taxes if the value is below the threshold, but that they will have to draw down, tax free, the ROTHs within 10 years.

Thanks

TH666

[tagteam]

Anything you own that has value, including retirement accounts (such as IRAs), is included in your gross estate at the time of your passing. 

Note that this is for the purposes of federal estate tax. See https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax

[Paolooch]

Okay, more to the point:

If we have ROTH IRAs with named beneficiaries, such as our children, am I correct that they then take over the ROTHs, rather than inheriting them?  Would the ROTHs be excluded from the valuation of the estate?  I am aware the or children would have to draw down the ROTHs, tax free, within a ten year period, but wouldn't that avoid the estate having to have a portion of the value taken out for tax?

Thanks

TH666

[tagteam]

The withdrawals would be tax-free to your beneficiaries, but the value on the date of your passing would be included in your gross estate.

I'm fairly certain you're not understanding the concept of "your gross estate", but that is basically the fair market value of the assets you own on the date of your death and is the figure upon which the federal estate tax is based. For the 2024 tax year, your estate would have to be valued at more than $13,610,000 for it to be subject to federal estate tax.

[Paolooch]

The concept of "your gross estate", i.e., "basically the fair market value of the assets you own on the date of your death and is the figure upon which the federal estate tax is based." seems pretty clear, actually.  I may not fully understand the probate process as it pertains to my question, though.  I haven't slogged through the IRS rabbit warren regarding this matter, but I have tried to get a feel for what estate taxation involves.  About the only relatively clear result of my search is this:

With a properly designated beneficiary, your Roth account will not be included as part of an estate ...

It IS from Investopedia, not the IRS, but I didn't spend too much time drilling though to see what IRS page or pages addressed the matter.  This is mostly a curiosity issue, but I do want to consult a financial planner to see what, if anything, we can do to ensure what we leave behind, after taxes, is maximized for our children.  Hence I am attempting to learn a bit about this.

Thanks.

TH666

[tagteam]

Your link was truncated by the forum software but I get the idea and the confusion.

Investopedia is simply stating that your Roth IRA passes outside your estate (i.e., not a probate asset), which is totally irrelevant for the purposes of federal estate tax inclusion and valuation.

Again, unless your estate is very large (over $13.6 million for 2024) or expect it to exceed the limits in the future (which should still be in the millions if the limit is reduced) then you need not be concerned with the federal estate tax.

[Paolooch]

Hmmph.  Okay, thanks.  Guess I'll have to research estate taxation, then.

[tagteam]

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@Paolooch wrote:

Hmmph.  Okay, thanks.  Guess I'll have to research estate taxation, then.

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You can start at the IRS site below for their FAQ.

https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-estate-t...