Roth Ira

So, just who can be the beneficiary of a Roth IRA? Before defining that, let's take a look at just what the account is. For that, let's turn back the clock to the year 1978. That was when the U.S. Congress decided to create a method for people to save more money for retirement. This was important as too many workers were looking to Social Security to sustain them in their old age.

The simple fact of the matter is that that program was never intended to support people; the payments were to augment people's income, not replace it. So, Congress created a way for people to save, and which also lowered their federal and state taxes. The result was the Tax Reform Act. Under Section 401, paragraph (k) tax-deferred savings accounts were created, the Individual Retirement Accounts (the IRA). The plans became known as "401(k)'s", for an obvious reason.

Then, in 1997, the Roth IRA was created by the Taxpayer Relief Act. It got its name from Senate Finance Committee Chairman William V. Roth. He's been an advocate of retirement savings accounts like IRA's for a very long time. With this type of account, taxes are paid on the contributions the worker makes, but the savings grow tax-free, and then the withdrawals will not be taxed at all, provided certain rules are obeyed.

First, the recipient has to be older than age 59 years and six months. Second, the Roth IRA has to have been owned by the retiree for a minimum of least five years. Also, they allow people to continue to contribute to them, and do not require withdrawal of funds, even after age seventy. That's ideal for older Americans who want to insure that they have enough money to support themselves into their old age.

This now brings us to the issue of beneficiaries for the IRA. Naturally, the primary beneficiary is the owner, but as the account is intended for retirement (for old age), people have to decide who will get their money after they pass away. In the case of a spouse, the transfer is quite simple, they can treat the Roth IRA as their own and continue it.

On the other hand, if a non-spouse gets it - say a child, the rules are slightly different. The beneficiary must do one of two things: take the money from the account by the end of the fifth year after the account owner's death, or start to withdraw it no later than December 31st of the year the owner died, and spread it out over their life expectancy. Either way is not a bad deal, and can give the beneficiary a nice income supplement.