Congress Just Made Passing an IRA Down to Your Kids a Lot Harder. Here's What You Can Still Do

[MULTIZ321]

Congress Just Made Passing an IRA Down to Your Kids a Lot Harder. Here's What You Can Still Do.

Congress Just Made Passing an IRA Down to Your Kids a Lot Harder. Here's What You Can Still Do

For many beneficiaries, the "stretch IRA" is no longer an option.

money.com

Richard

 

[rapmarks]

Just went to presentation on this topic.
passing on ira to kids when they are in their highest earning period could result in 40% tax between federal and state taxes when added to their earnings.

 

[joestein]

I don't disagree with the 40% tax calc, however IRAs are meant to be spent in retirement and not to be vehicle for inheritance. If someone is that worried about it, roll it over to a Roth and just pay tax while you are alive.

Most of our wealth is in 401Ks, my least concern is the tax my kids would pay if die before I spend it all. That being said, when I get closer to 60 (turning 50 this year), I will consider a strategy on converting my 401Ks to Roth IRAs. Maybe retire at 60 and rollover to a Roth IRA enough from the 401K to keep it under a lower tax bracket. Maybe hold off on SS until I have transfered most or all of it. Regardless, draw SS at 70.

Of course, this requires me to have a bunch of cash available to live on for those 10 years or so.

 

[pittle]

Well, our investment guy and attorney that set up our trust both say that our goal should not be to sacrifice so that we could leave money to our kids. We earned it and should be the ones to spend it, not them. The investment guy said that our goal should be that the check the kids write for our final expenses bounces!

So, we worked 30 years as managers at a major company with awesome benefits and retired at 55. I have been retired 18 years now and hubs 20 years. We have thoroughly enjoyed it and still have more than half of what we started with.

Our 2 sons will get the proceeds from the sale of our house. (Unless we need to sell it and move to a Continuing Care Community.)

We paid for their college and helped them when they first got married, and paid for quite a few awesome vacations for them, so now that they are 48 and 50, they should not need mom & dad's money. If they get any, then they can pay taxes on it.

 

[pedro47]

Thank for sharing this article. Sound liked some major insurance companies lobbying groups completed their mission with this new legislation. IMHO.

 

[rapmarks]

My husband made a smart move in 2000 moving everything in his ira to vanguard. He has withdrawn for seven years and it is still seven times what he started with in 2000. At this rate he will have a lot left.
i figure that when the time comes for him to go to a nursing home, we will spend at least ten thousand a month, plus all the other expenses for insurance copays, etc.
moving to a Roth is a smart move, but at the time we retired it was not an option. I am balancing the pros and cons of saving to grandkids too, who are presently between 5 and 10.

 

[Blues]

i figure that when the time comes for him to go to a nursing home, we will spend at least ten thousand a month, plus all the other expenses for insurance copays, etc.
moving to a Roth is a smart move, but at the time we retired it was not an option. I am balancing the pros and cons of saving to grandkids too, who are presently between 5 and 10.

Actually, you just articulated a good reason not to convert to Roth. Most of those nursing home expenses will be medical deductions. Thus, the taxable income due to taking the money from the IRA will be offset by the medical deductions. No reason to pay tax on it now, when you very well may not have to pay tax on it later.

 

[Talent312]

If there's a tax burden from our inherited IRA's....
I ain't gonna worry about it. After all, I'll be dead.
The kids can pay any tax due from what's left.

 

[Brett]

Actually, you just articulated a good reason not to convert to Roth. Most of those nursing home expenses will be medical deductions. Thus, the taxable income due to taking the money from the IRA will be offset by the medical deductions. No reason to pay tax on it now, when you very well may not have to pay tax on it later.

true, payments to an assisted living facility qualify as a medical expense tax deduction (subject to the 7.5 and 10% exclusion)

 

[Brett]

If there's a tax burden from our inherited IRA's....
I ain't gonna worry about it. After all, I'll be dead.
The kids can pay any tax due from what's left.

I'm starting to feel that way

 

[geekette]

It's not harder to leave money to your kids. One can do that through any number of accounts. Just not an IRA that can go on for decades. I don't understand being upset about paying tax on income that really wasn't yours until someone died. In no circumstances will the tax be more than the amount received. Roth conversion is an exception, pre-paying the tax with no withdraw, in exchange for future tax free withdrawals. I would not do this for my kids, I would do it only if it made sense for my life. Which in my case, it doesn't.

 

[rapmarks]

There are lawyers and financial advisors making a good living telling seniors how to avoid having their estates eaten up by taxes. So I think that those of you poo pooing the concern may not be the majority. Also, they point out that if they can change the law that was in effect when you set up your ira, they can change other laws that will adversely affect you.
there is a bill with 150 representatives who have signed on to tax unrealized capital gains. That means you would pay tax each year on the amount your portfolio went up on paper. Now some of you are going to say I don’t care if they do,but it is very short sighted.
keep in mind that your portfolio may double every seven years,that is an awfully lot of money to be taxed on when you retire.
and the point isn’t whether you should pay taxes on iras, but that they have to be completely withdrawn within ten years, which will probably happen while your children are still working.
so many people plan somehow to die having spent every penny, which leads me to believe what the financial advisors say, people have no savings for nursing homes or assisted living.

 

[geekette]

There are lawyers and financial advisors making a good living telling seniors how to avoid having their estates eaten up by taxes. So I think that those of you poo pooing the concern may not be the majority.

Yes, but those making big money may be blowing up the concern to make this money. Most of the fi industry is about selling fear. How many people won't invest directly in a stock due to fear? How many are pulling their money out of the market before retirement due to fear?

I am ok-fine being a minority in doing it all myself. I studied, I put my plan into action and have lost no money in the stock market in over 30 years. I could have instead let mutual funds, advisors, etc., take my money. A business that continues to make money, and share those profits with me, is not going to scare me away when a recession shrinks the share price. The price of a stock has nothing to do with profitability of a company, yet still many are afraid to be in the market in case a recession comes. Won't people still buy toilet paper and pay their electric bill during recession? Dividends don't disappear when a stock price goes down. I've been through many recessions now with my money in the market. My biggest risk is the overnight vaporization of wide swaths of business. Holding firm, into my mid 50s, over 90% in equities. Perhaps that would scare others, but the question is, Why? Because they have been taught to fear recession, that it will steal all their money. Who pushes this idea? It's not the do it yourself dividend investors.

 

[geekette]

My husband made a smart move in 2000 moving everything in his ira to vanguard. He has withdrawn for seven years and it is still seven times what he started with in 2000. At this rate he will have a lot left.
i figure that when the time comes for him to go to a nursing home, we will spend at least ten thousand a month, plus all the other expenses for insurance copays, etc.
moving to a Roth is a smart move, but at the time we retired it was not an option. I am balancing the pros and cons of saving to grandkids too, who are presently between 5 and 10.

A couple questions - where had his IRA been, that was less good than Vanguard? I am overall quite Yippee! on account balance being much larger, even after withdrawals. With the market the past 20 years, I would hope this would (should) be the case.

Second, what do you mean by pros and cons of saving to grandkids? Is this about creating trusts? I'm not terribly familiar with 529s, but if they are college bound, could be a great way to go.

 

[DancingWaters]

Well, our investment guy and attorney that set up our trust both say that our goal should not be to sacrifice so that we could leave money to our kids. We earned it and should be the ones to spend it, not them. The investment guy said that our goal should be that the check the kids write for our final expenses bounces!

So, we worked 30 years as managers at a major company with awesome benefits and retired at 55. I have been retired 18 years now and hubs 20 years. We have thoroughly enjoyed it and still have more than half of what we started with.

Our 2 sons will get the proceeds from the sale of our house. (Unless we need to sell it and move to a Continuing Care Community.)

We paid for their college and helped them when they first got married, and paid for quite a few awesome vacations for them, so now that they are 48 and 50, they should not need mom & dad's money. If they get any, then they can pay taxes on it.

Congratulations on a successful retirement. We retired at 62 but are working part time jobs. We don’t seem to be able to “totally retire.” We have enough money: pensions,401k, 403b, etc but we are scared it’s not enough. We are selling our rental property in hopes of having less expenses and responsibilities. Maybe then we can figure out to relax. Any tips welcomed!!

 

[Brett]

There are lawyers and financial advisors making a good living telling seniors how to avoid having their estates eaten up by taxes. So I think that those of you poo pooing the concern may not be the majority. Also, they point out that if they can change the law that was in effect when you set up your ira, they can change other laws that will adversely affect you.
there is a bill with 150 representatives who have signed on to tax unrealized capital gains. That means you would pay tax each year on the amount your portfolio went up on paper. Now some of you are going to say I don’t care if they do,but it is very short sighted.
keep in mind that your portfolio may double every seven years,that is an awfully lot of money to be taxed on when you retire.
and the point isn’t whether you should pay taxes on iras, but that they have to be completely withdrawn within ten years, which will probably happen while your children are still working.
so many people plan somehow to die having spent every penny, which leads me to believe what the financial advisors say, people have no savings for nursing homes or assisted living.

I am not "poo pooing" your investment ideas, I'm just suggesting you consult with a financial advisor before converting a regular IRA to a Roth IRA.

And I don't believe the average stock portfolio will keep doubling every seven years but if it keeps going up while I'm still alive, great.
Most of my stock portfolio won't be taxed when I die because most of my financial assets are in regular brokerage accounts (not IRA's or 401k) and it's not over $22 million.
and that "bill with 150 representatives" who have "signed on" to tax unrealized capital gains .... not sure that's ever going to happen unless you're part of the 1%

 

[rapmarks]

I am not "poo pooing" your investment ideas, I'm just suggesting you consult with a financial advisor before converting a regular IRA to a Roth IRA.

And I don't believe the average stock portfolio will keep doubling every seven years but if it keeps going up while I'm still alive, great.
Most of my stock portfolio won't be taxed when I die because most of my financial assets are in regular brokerage accounts (not IRA's or 401k) and it's not over $22 million.
and that "bill with 150 representatives" who have "signed on" to tax unrealized capital gains .... not sure that's ever going to happen unless you're part of the 1%

Brett I have absolutely no plans to convert my ira to a Roth, I said it was a good idea and I should have added in the case mentioned, early in retirement before the mandatory withdrawals.

 

[rapmarks]

A couple questions - where had his IRA been, that was less good than Vanguard? I am overall quite Yippee! on account balance being much larger, even after withdrawals. With the market the past 20 years, I would hope this would (should) be the case.

Second, what do you mean by pros and cons of saving to grandkids? Is this about creating trusts? I'm not terribly familiar with 529s, but if they are college bound, could be a great way to go.

Our schools made us put our 403b with insurance companies. We were in 403b because we were never going to get social security so we saved 15% of our income to prepare for retirement. Foolish us, so sorry we did that. we take our distributions and send most to irs. No such thing as a roth until our combined income was too high to contribute.

we do contribute to 529s for grandkids ,but not with ira money.
I have a money saver son and a daughter who will spend every penny and more. So my plan that she would at least have left over ira for her old age is gone, she Will have to withdraw it while still working.

 

[rapmarks]

Yes, but those making big money may be blowing up the concern to make this money. Most of the fi industry is about selling fear. How many people won't invest directly in a stock due to fear? How many are pulling their money out of the market before retirement due to fear?

I am ok-fine being a minority in doing it all myself. I studied, I put my plan into action and have lost no money in the stock market in over 30 years. I could have instead let mutual funds, advisors, etc., take my money. A business that continues to make money, and share those profits with me, is not going to scare me away when a recession shrinks the share price. The price of a stock has nothing to do with profitability of a company, yet still many are afraid to be in the market in case a recession comes. Won't people still buy toilet paper and pay their electric bill during recession? Dividends don't disappear when a stock price goes down. I've been through many recessions now with my money in the market. My biggest risk is the overnight vaporization of wide swaths of business. Holding firm, into my mid 50s, over 90% in equities. Perhaps that would scare others, but the question is, Why? Because they have been taught to fear recession, that it will steal all their money. Who pushes this idea? It's not the do it yourself dividend investors.

You are probably going to have three to four times what you have now when you reach your seventies because of the rate of return.

 

[heathpack]

There are lawyers and financial advisors making a good living telling seniors how to avoid having their estates eaten up by taxes. So I think that those of you poo pooing the concern may not be the majority. Also, they point out that if they can change the law that was in effect when you set up your ira, they can change other laws that will adversely affect you.
there is a bill with 150 representatives who have signed on to tax unrealized capital gains. That means you would pay tax each year on the amount your portfolio went up on paper. Now some of you are going to say I don’t care if they do,but it is very short sighted.
keep in mind that your portfolio may double every seven years,that is an awfully lot of money to be taxed on when you retire.
and the point isn’t whether you should pay taxes on iras, but that they have to be completely withdrawn within ten years, which will probably happen while your children are still working.
so many people plan somehow to die having spent every penny, which leads me to believe what the financial advisors say, people have no savings for nursing homes or assisted living.

Yeah this is so interesting to me. I went to college on a scholarship and to veterinary school on student loans. My parents paid my living expenses in undergrad but I covered tuition with my scholarship. In vet school, I paid it all (tuition and living expenses) except unexpected and necessary things like dental or medical bills which my parents would pay. No one ever bought me a car, or a house, or took me on a vacation after high school. I never asked for help with a down payment on anything.

In short, my parents mostly expected me to be on my own financially after undergrad, although they were always there as a sure-thing safety net.

But still, they worked hard for their money and they’ve set up a financial plan to try to ensure I get as much of it as possible, and the govt gets as little of it as possible. It’s so strange to me those here who are saying they don’t care, they’ll be dead. I guess my Mom cares (Dad has passed away) about this stuff more than is typical!

PS We tell her all the time that it’s her money. She earned it. Do what she wants with it.

 

[geekette]

You are probably going to have three to four times what you have now when you reach your seventies because of the rate of return.

I can absolutely live with the problem of too much money creating larger tax burden!

I plan to transfer in kind positions from IRA to taxable when RMDs roll around, let the divs help pay the tax.

 

[rapmarks]

Yeah this is so interesting to me. I went to college on a scholarship and to veterinary school on student loans. My parents paid my living expenses in undergrad but I covered tuition with my scholarship. In vet school, I paid it all (tuition and living expenses) except unexpected and necessary things like dental or medical bills which my parents would pay. No one ever bought me a car, or a house, or took me on a vacation after high school. I never asked for help with a down payment on anything.

In short, my parents mostly expected me to be on my own financially after undergrad, although they were always there as a sure-thing safety net.

But still, they worked hard for their money and they’ve set up a financial plan to try to ensure I get as much of it as possible, and the govt gets as little of it as possible. It’s so strange to me those here who are saying they don’t care, they’ll be dead. I guess my Mom cares (Dad has passed away) about this stuff more than is typical!

PS We tell her all the time that it’s her money. She earned it. Do what she wants with it.

Carrying the I don’t care I’ll be dead further, why bother with a will,why bother titling things to avoid probate, you’ll be dead.

 

[klpca]

Yeah this is so interesting to me. I went to college on a scholarship and to veterinary school on student loans. My parents paid my living expenses in undergrad but I covered tuition with my scholarship. In vet school, I paid it all (tuition and living expenses) except unexpected and necessary things like dental or medical bills which my parents would pay. No one ever bought me a car, or a house, or took me on a vacation after high school. I never asked for help with a down payment on anything.

In short, my parents mostly expected me to be on my own financially after undergrad, although they were always there as a sure-thing safety net.

But still, they worked hard for their money and they’ve set up a financial plan to try to ensure I get as much of it as possible, and the govt gets as little of it as possible. It’s so strange to me those here who are saying they don’t care, they’ll be dead. I guess my Mom cares (Dad has passed away) about this stuff more than is typical!

PS We tell her all the time that it’s her money. She earned it. Do what she wants with it.

For me it's not that I don't care, but there's only so much that you can do. We will do our best to minimize taxes but after that, the kids may have to pay some tax on their windfall. And that I am not going to worry about!

 

[heathpack]

For me it's not that I don't care, but there's only so much that you can do. We will do our best to minimize taxes but after that, the kids may have to pay some tax on their windfall. And that I am not going to worry about!

Well I’m pretty sure my Mom will worry about it to the extent that she meets with her financial planner to consider her options (examples of which are included in the article linked) beyond just saying, “well that’s how the cookie crumbles”.

Generally she doesn’t even spend her minimum required 401K dispersements each year and is forced to withdraw extra money at the end of each year. Personally I think she should stick with what she has, because her needs should come before any desire to leave something to us. But she can afford some tax liability now and her advisor may suggest the Roth conversion. The guy’s a whiz and definitely does right by her so I’m sure they’ll make a solid decision.

 

[Talent312]

...he can afford some tax liability now and her advisor may suggest the Roth conversion.
The guy’s a whiz and definitely does right by her so I’m sure they’ll make a solid decision.

I rec'd a call from a "retirement specialist" at TD Ameritrade (our broker). He tried the line that I may want to convert to a Roth to save my heirs (post-spouse) from having to pay tax on inherited IRA's. I replied that I see no reason for us to pay the tax when they can do so from their inheritance.

I said, "We're not like the Robbie Family who had to sell the Miami Dolphins to pay estate taxes."
He said, "Well, these days, the Dolphins may not sell for much. But I do understand."
.