Using Roth for Living and Final Expenses | Ed Slott and Company, LLC

Using Roth for Living and Final Expenses

PS: Is there some reason that this topic has no responses on this forum? I do not see other threads that go without a response. Seems to me to be a legitimate question about the use of a Roth. ????

I am trying to do a number of things with a Roth and our living trust with a pour over will.

Basically, I would like to use a Roth as a non-taxable source of living expenses income in place of a large checking account and/or a taxable brokerage account.

In addition, since a large amount of our estate is controlled by beneficiary law for retirement assets, I am struggling with how I can accumulate assets that a final trustee can use to pay final costs, taxes, the trustee's guaranteed fee, etc. The checking account, taxable brokerage account and the house are in the living trust's name. I don't want to force the final trustee to do "fire sales" in order to raise funds for final expenses.

Can I also use the Roth mentioned above that is used for living expenses as this final expenses pool? I was thinking that possibly I could name my spouse who is statistically likely to survive me as the one and only beneficiary of this Roth. Assuming that she doesn't mess that up when inheriting it by naming other beneficiaries, can I assume that this Roth will at her passing belong to the trust trustee and available for final expenses? And then would any excess Roth funds after all expenses belong to the trust and then be distributed to the trust beneficiaries (kids)?

Does this Roth approach work? Problems? A better way?

Thank you in advance for any advice, comments and suggestions.

PS: Would the Roth have to have a secondary beneficiary that is the living trust for this to work?

  • Just noticed this post.  With the pour over will, all assets not passing under operation of law should be directed into the trust, and one of those assets could be a Roth IRA owned by the surviving spouse with the trust listed as the beneficiary. The trustee could request tax free distributions to generate a quick source of cash. If any IRA is left to the trust, care should be taken to be sure the trust is qualified for look through so that any remaining Roth assets can be stretched by the trust beneficiaries (age of oldest trust beneficiary determines the RMDs). If the trust is not qualified, the 5 year rule will apply. While the Roth could be used for immediate cash needs, Roth assets should be last in priority if cash can be raised from other trust assets since qualified Roth assets are more valuable to beneficiaries than these other assets.
  • If you are using a professional trustee who is familiar with your potential estate, perhaps they have some suggestions. In the past I have asked a professional fiduciary if having a checking POD in favor of the fiduciary would take care of the final expenses, they were not sure since they are accumtomed to tapping probate assets for these expenses. They felt there would be a problem converting a POD account in their favor to a probate asset. Essentially, they would be like a beneficiary volunteering inherited assets to pay final expenses. 

Alan, thank you very much!!!!!

  • If you leave your Roth IRA to your wife, and she survives you, it will be hers, to do with as she wishes.
  • As your post indicates, naming beneficiaries for taxable accounts often complicates the estate administration.
  • Bruce Steiner
 

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