Now that jimrac has given an example, I understand the point he is trying to make. However, there's a couple of things he doesn't consider. IF you took an inheritance as cash, and IF you kept it as cash, then yes, you could spend it down without incurring income tax. However, if you take that money and invest it, you will pay taxes upon your gains. But you do get that Âstep up basis jimrac is depending upon. But of course, if you allow the account to compound over time without spending principal, you run the risk of incurring estate taxes for your own heirs. You could also buy an annuity, which has some limited tax advantages. Conversely, inheriting an IRA is different. You do not have to cash out an inherited IRA, in fact you should always roll it over into an FBO account in your and the deceasedÂs names. IF the owner was taking distributions, heirs also have to take distributions  but they can take the minimum distribution (Required Minimum Distribution, or RMD) which at young ages is a very modest amount indeed. If the owner was not taking distributions, the IRA can be left intact until age 70-1/2 for the heir. And in the case of an inherited Roth IRA, there is NEVER any income tax, for owner or heirs. Because the gains in the Roth compound tax-free, they win hands-down over any taxable account. The biggest issue is the salary restrictions (higher wage earners are barred from contributing to a Roth, although in 2010 only they can convert any amount they wish to pay income taxes on now) and the low annual contribution amount (although I expect Congress will probably increase those at some point). As my ex-boss, a respected CFP, used to say, "Don't let the tax tail wag the dog!" Tax planning should be looked at in a holistic fashion. Somebody's going to pay taxes, it just depends on who that is, and how much. Frankly, if you had a $1M mutual fund account - and I know quite a few people who do - if you were that concerned about your heirs paying income taxes, you'd set up an ILIT (Irrevocable Life Insurance Trust) for your immediate heirs, and a Bypass or QTIP trust for the future generation heirs.

1. You can each open a Roth IRA if your modified AGI is less than $160,000. If your modified AGI is between $150,000 and $160,000, you can contribute a reduced amount. 2. You have until April 17, 2007 to contribute to a Roth or traditional IRA for 2006. 3. The maximum contribution to IRA's for 2006 for anyone who is over the age of 50 is $5,000 ($4,000 in regular contributions and $1,000 in "catch up" contributions). You cannot contribute more than your earned income between your and your husband's IRA's. Hope this helps. Here is a link that might be useful: IRS info on Roth IRA's

You can invest the money in any number of ways, so include stock gains and other increases, not just interest.

As U.S. homeowners can deduct mortgage interest, if your mortgage interest is 6% and you're in 33% marginal (i.e. top, for you) tax bracket, 33% of that 6% is 2%, leaving you with a net cost of mortgage of 4%. In Canada we can't deduct mortgage interest - but when we sell owner-occupied home, capital gain is free of tax. If you own a bond (taxable-interest type) paying 5% and you're in 20% tax bracket, your after-tax rate of return is 20% less than your apparent earnings, or 4% - outside of tax-deferred IRA. The costs of owning a home are larger than was originally suggested: there's higher insurance rates (if you're in an apt. you insure only your furnishings), costs of a new roof on occasion, repairing cracked basement wall, replacement of furnace, etc. Many financial advisors in Canada say that every worker should own our tax-deferred retirement plan - but some of us are less than enthusiastic about them, for reasons that relate to lower tax rates on certain types of return on non-retirement-related investments, both in terms of current income and on cashing of assets later. Some homeowners seem to forget that, were their money not invested in a home, it could be earning (whatever) rate of return invested elsewhere. Out of which they would need to deduct their costs of rental. Plus (expected) increased value of their home on sale after a number of years. Many clergy in our country used to live in church-owned homes and some felt that such homes did not relate well to familes with 4 kids and empty-nesters, plus they said that they wanted to profit from the increased value of homes, over a number of years ... so they wanted to own their own homes (and the church pays tax-free rental allowance). I said that they'd profit a lot lower than they figured ... for clergy move fairly often, and each move would usually require sale of their current home ... with the real estate people pocketing a substantial portion of the increased value of the home since the last move. If I'm a renter and get transferred ... or downsized, with no current local job prospects, requiring a move to secure satisfactory employment, if I rent an apt., all I need do is hire a moving truck. Not so if I own a home. There are many nuances that relate to the wisdom of buying a home or renting, or paying down a mortgage rather than ivesting for retirement, one of them being having enough asset on hand that one can survive fo half a year or so with no paycheque, if required. I don't always have it, but I have a line of credit at the bank, unused at the moment, that costs me nothing to maintain,which I can draw on as I choose. Some years ago when I asked a local bank whether I could make a loan, using strong assets as collateral, they said that would be O.K. - so I moved about 2,500 miles to take a commission sales position. When I went to that bank for a loan and they wanted to know what rate of income I'd have ... they turned me down for the loan! So ... I had to withdraw some of my tax-deferred retirement asset (on which I paid minimal tax, having low income that year). Good wishes as you pursue greater knowledge about how money works: not only does enhanced knowledge increase one's power ... it pays well, on occasion . ole joyful