If you are a high net worth individual, then it may be unlikely that you will need to spend your IRA funds. In this particular situation, you may find that it is useful not to be subject to the required minimum distribution (RMD) rule. The RMD rule applies to tax payers who are age 70 ½ and who have an IRA account. The RMD rule uses a formula based on life expectancy to determine how much annual distribution tax payers must take. When the funds are distributed they become income taxable since these funds were initially contributed pre tax.

It is common practice for high net worth individuals to defer distributions from IRAs in an effort to continue tax deferred growth as long as possible. This strategy is an attempt to avoid taking distributions and therefore further delaying income tax obligations. To avoid losing tax dollars the RMD rule was created forcing distributions to be made and therefore income taxes to be paid.

Individuals with a Roth IRA are not subject to the RMD rule because the taxes were paid on the contributions up front. For the same high net worth individual who doesn’t need to take distributions, a Roth IRA could be passed to the next generation with income tax free growth. Not only are income taxes not due on the distribution, but the lack of required distributions allows for significant growth opportunity.