Which type of account allows your client to avoid Required Minimum Distributions during retirement?

The Roth IRA is the type of account that allows your client to avoid Required Minimum Distributions (RMDs) during retirement. This feature is particularly appealing for clients who want to maintain control over their funds for as long as they wish, potentially allowing their investments to grow tax-free for a more extended period.

In a Roth IRA, contributions are made with after-tax dollars, meaning the investment grows tax-free, and qualified withdrawals during retirement are also tax-free. Importantly, account holders are not required to take distributions at any age, unlike traditional IRAs or 401(k) accounts, which mandate RMDs starting at age 72 (as of current regulations). This allows clients to manage their retirement income more flexibly and helps them potentially reduce their overall tax burden in retirement.

Other account types, like the Traditional IRA and 401(k), require account holders to start taking minimum distributions at a certain age, which can lead to tax implications and reduce the potential for continued investment growth. A taxable investment account does not have RMDs, but it also does not offer the same tax advantages as a Roth IRA, such as tax-free growth and withdrawals. Thus, the Roth IRA stands out for its unique benefits regarding required distributions.