Twenty years ago, the Roth IRA became available to investors as a financial tool for their estate planning needs.

These accounts have maintained their popularity because unlike their traditional IRA counterpart, a Roth IRA provides account owners tax-free income in retirement.

In fact, many people chose to convert their traditional IRA or 401(k) plan into a Roth IRA to benefit from this long-term tax advantage. The recently enacted tax reform, however, has removed the ability to recharacterize — or undo — a Roth IRA conversion.

A recharacterization is basically a reevaluation of whether the conversion made financial sense. As an example, let’s say Greg decides to convert a $100,000 traditional IRA to a Roth IRA. When Greg does this, he has to pay income tax on the $100,000 now. This isn’t as bad of a deal as it sounds, because now the money is in a Roth IRA, where eventually all of the withdrawals will be tax free. When Greg retires, he’ll have “tax-free” income from the Roth IRA instead of having to pay income tax on each withdrawal if it were still in the traditional IRA. In the past, if the market were to decline to say $90,000, Kevin could recharacterize — or undo — the conversion. This is important because he had to pay income tax on the full $100,000 of the conversion, but assets have declined in value to only $90,000. Greg would be paying income tax on a “phantom” $10,000 IRA conversion. Under the new tax act, this “second look” recharacterization offer is closed, so a Roth IRA conversion is just a little riskier than is used to be.

What this means for your loved ones

IRA owners and beneficiaries may not know the rules that apply to them, so here are a few basic scenarios that may have consequences for you and your loved ones in the event you pass away and leave behind an IRA.

First, if you die before spending all the money in your IRA you can leave the retirement account to your surviving children, grandchildren, or other beneficiary you have designated in your estate plan.

Second, whether it is a traditional IRA versus a Roth IRA is important as it vastly affects the amount of benefit your loved ones will receive. When you leave behind a traditional IRA, your family will pay income taxes on the money they withdraw when it is taken out of the account. On the other hand, if you leave behind a Roth IRA the money will be income tax-free for your family. Although both types of accounts are subject to the estate tax (or death tax), the death tax is likely a non-issue for most people now, as the federal estate exemption is presently over $11 million per person.

Third, you can create an IRA trust as part of your comprehensive estate plan. An IRA trust is a special trust that is purposefully designed to receive IRA distributions for the benefit of your loved ones after you die. This powerful tool maximizes the benefit to your family upon your passing and can be used for both traditional or Roth IRAs. So, whether you decide to convert or not, you still need to consider an IRA trust.

Finally, although tax reformed altered the flexibility of IRA conversions by removing the ability to undo them with a recharacterization, a conversion may still be a good financial planning option for some. As you work with your financial and tax advisors on your conversions, consider your beneficiary designations and whether an IRA trust might be right for you.

Because there are several factors to consider when including your IRA in your estate plan, you should always work with a knowledgeable estate attorney or CPA, who can advise you on the best decisions give your financial situation and current tax law.