• The TUGBBS forums are completely free and open to the public and exist as the absolute best place for owners to get help and advice about their timeshares for more than 30 years!

    Join Tens of Thousands of other Owners just like you here to get any and all Timeshare questions answered 24 hours a day!
  • TUG started 30 years ago in October 1993 as a group of regular Timeshare owners just like you!

    Read about our 30th anniversary: Happy 30th Birthday TUG!
  • TUG has a YouTube Channel to produce weekly short informative videos on popular Timeshare topics!

    Free memberships for every 50 subscribers!

    Visit TUG on Youtube!
  • TUG has now saved timeshare owners more than $21,000,000 dollars just by finding us in time to rescind a new Timeshare purchase! A truly incredible milestone!

    Read more here: TUG saves owners more than $21 Million dollars
  • Sign up to get the TUG Newsletter for free!

    60,000+ subscribing owners! A weekly recap of the best Timeshare resort reviews and the most popular topics discussed by owners!
  • Our official "end my sales presentation early" T-shirts are available again! Also come with the option for a free membership extension with purchase to offset the cost!

    All T-shirt options here!
  • A few of the most common links here on the forums for newbies and guests!

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

heathpack

TUG Review Crew: Veteran
TUG Member
Joined
Oct 22, 2008
Messages
4,651
Reaction score
3,750
Points
598
Location
Los Angeles
Resorts Owned
Hyatt High Sierra and Highland Inn
Disney’s Grand Californian and Hilton Head Island
Marriott Barony Beach and Mountainside
MVC Points
Sheraton Broadway Plantation
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.

My reply was to the effect 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."
.

Well I’m not sure what the strikethrough in your post is all about but the tax idea is straightforward really.

You, a retiree, are in a presumably lower tax bracket than your kids who inherit your 401K if they are in peak earning years.

Thus the total tax paid on the sum of money might be less if the retiree pays it than if the heir pays it. Generally speaking its a common approach to just always look at a tax liability to see if it could be reduced in any way.

You might not be in a position to consider paying the tax burden. Or your kids might not earn enough for it to matter, perhaps they are retired themselves. But thinking about options? Seems reasonable enough to me.
 

Talent312

TUG Review Crew: Veteran
TUG Member
Joined
Jul 4, 2007
Messages
17,461
Reaction score
7,277
Points
948
Resorts Owned
HGVC & GTS
Well I’m not sure what the strikethrough in your post is all about...

It's about 1AM ET., and hitting the wrong button.
But yes, it's fair ask, and I have considered it.
 

SmithOp

TUG Review Crew
TUG Member
Joined
Jun 17, 2010
Messages
7,609
Reaction score
3,403
Points
499
Location
Huntington Beach, CA
Resorts Owned
HGVC King's Land 2BR Premier 23.040K Points.
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.

IRS rules do not allow RMD to be converted to another tax advantaged retirement account (Roth), so if she wants to go that route it would be additional funds after RMD is taken.


Sent from my iPad using Tapatalk Pro
 

geekette

Guest
Joined
Jun 6, 2005
Messages
10,777
Reaction score
5,531
Points
848
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.
Interesting. On several points.

403b is basically a 401k for nonprofits. Weird to administer through an insurance company, but probably better than self-administer. Good move to get it out of there, I agree on that, especially in order to open up options for the savings.

So you are saying it was bad because, while you saved, as you take that money it mostly goes to IRS? I can understand that perspective, although I don't share it. it could have been taxed moons ago and sit in a regular brokerage, taxed every year that something happens, like end of year gains distributions from funds, or dividends. To me, they're gonna get ya one way or another, you only get to choose When.

I'm not to the same situation, but I can imagine looking at this hunk of money and thinking, ok, yes, I can get to that, BUT, pay the piper. Sitting tight. Then here come RMDs when the choice to let it ride is gone.

Your daughter - hopefully she thinks about her future and is in a 401k or some such that diverts dough made from her hands into a long term account. You never know when the "oh crap, I have to support myself on this without working!" dawns on people, but hopefully she will hit that realization and stop rampant spending. Yeah, 10 years is not a huge amount of time, but hopefully by her second withdrawal she thinks, I could use this money to live on while I divert my paycheck into savings...

It could happen. the more the "retirement crisis" is in the news, as she hears about people having great difficulty paying for living as a senior, she will Get It and take measures to avoid becoming old and poor. That you and your husband saved 15% regularly seems to have been lost on her, but kids aren't always like their parents. Seems your fine example was ignored, but I'll hold out hope that she will have "that lightbulb moment" and fully understand that funding old age is a responsibility each must undertake.
 

geekette

Guest
Joined
Jun 6, 2005
Messages
10,777
Reaction score
5,531
Points
848
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!
Indeed, only so much that can be done. Plus, one has to look after their own old age and end of life before considering the next generation, which should be toiling and saving for their own old age.

We knew there would be no inheritance from an early age. We paid our own schooling. We made our own car payments, home down payments, etc. Of course my retirement is for me to fund.

None of us have power over tax law, it could change at any time. So I would not be going to a lot of trouble to concern myself with the future tax situation of someone that will be in an unknown tax bracket managing an unknown amount of inherited IRA of unknown amount starting at unknown date.

Honestly, if the tax bracket is so onerous with inherited IRA, they can quit work. They will have options that I know nothing about in the here and now. Make all the plans you want, and see what future legislation trashes those grand ideas.
 

bogey21

TUG Member
Joined
Jun 8, 2005
Messages
9,455
Reaction score
4,662
Points
649
Location
Fort Worth, Texas
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!

I agree with this 100%. All I own is my 2011 Mazda3 and a couple of Banks Accounts JTWROS with my kids and ex-wife. I make sure to have enough in the Bank Accounts to cover my needs. I do not try to build them up to benefit anyone after my death...

George
 

bogey21

TUG Member
Joined
Jun 8, 2005
Messages
9,455
Reaction score
4,662
Points
649
Location
Fort Worth, Texas
I figure that when the time comes for him to go to a nursing home, we will spend at least ten thousand a month...

You are right about the $10,000 figure. I live in a CCRC and the cost of a nice single room in Assisted Living is between $8,500 and $10,000 a month...

George
 

rapmarks

TUG Review Crew: Elite
TUG Member
Joined
Jun 6, 2005
Messages
9,628
Reaction score
4,764
Points
649
You are right about the $10,000 figure. I live in a CCRC and the cost of a nice single room in Assisted Living is between $8,500 and $10,000 a month...

George
oh my, he will need a lot more care than assisted living.I will have to up that number
 

pittle

TUG Review Crew
TUG Member
Joined
Jun 7, 2005
Messages
4,034
Reaction score
2,146
Points
599
Location
Goodyear, AZ
Resorts Owned
Vidanta Grand Luxxe
Buganvilias Sky Suites
Pueblo Bonito Em Bay
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!!
We took out more money the first 5 years to keep our standard of living pretty much the same as when we worked. But after we could stop the SEP withdrawals, we cut our withdrawals way back as we found that we did not spend nearly as much on vehicles, clothes, etc. So once we started receiving SS, we started taking even less out of our IRA. We had saved more than we thought from the withdrawals, so that gave us a cushion for emergency funds.
 
Last edited:

DebBrown

TUG Lifetime Member
Joined
Jun 6, 2005
Messages
2,542
Reaction score
169
Points
548
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.

We also plan to convert 401ks to Roth IRA right at retirement when we can do it at a lower tax rate.
 

heathpack

TUG Review Crew: Veteran
TUG Member
Joined
Oct 22, 2008
Messages
4,651
Reaction score
3,750
Points
598
Location
Los Angeles
Resorts Owned
Hyatt High Sierra and Highland Inn
Disney’s Grand Californian and Hilton Head Island
Marriott Barony Beach and Mountainside
MVC Points
Sheraton Broadway Plantation
Somehow the prevailing sentiment in this thread seems to be that there’s two options: either put your (in some cases ill prepared) heirs first at the expense of your own retirement or jusr “don’t care” what happens after you’re gone.

When actually you can put your own retirement needs first and still try to set things up so that anything left for your heirs is passed on to them in a way that minimizes taxes. It’s not necessarily an unknown and impossible to predict paradigm.

I am my mother’s primary heir. She is 80. It’s reasonably likely I will inherit her estate within the next decade. I am 54, will be in peak earning years and am limited in my job to $10k/yr plus catch up contributions to my 401k. So my Mom knows full well that I cannot defer taxes on as much of my income as can most people. She has therefore tried to plan to minimize my tax burden when she passed away. For our specific situation, it was her intention that I could collect on any inheritance in the form of her 401k over my life time and that I’d therefore be spared some of the taxes on it.

It would not be a matter of my quitting my job to avoid taxes. It’s a matter of how she structured her retirement savings and spending, which is now significantly affected by this change in law.

Caring about this does not make me irresponsible and dependent, nor does it make her extraordinarily selfless.
 

VacationForever

TUG Review Crew
TUG Member
Joined
Dec 5, 2010
Messages
16,196
Reaction score
10,607
Points
1,048
Location
Somewhere Out There
The part that makes us ponder whether to do Roth conversion is that we will need to pay taxes using money from our taxable accounts, which means the money paid as taxes now will be gone and no longer able to grow, as opposed to letting both taxable and tax deferred accounts grow and worry about taxes later. Also, with step up cost basis for the beneficiary, those money in taxable accounts look pretty good too, other than we have to pay dividends and interests each year.
 

rapmarks

TUG Review Crew: Elite
TUG Member
Joined
Jun 6, 2005
Messages
9,628
Reaction score
4,764
Points
649
The part that makes us ponder whether to do Roth conversion is that we will need to pay taxes using money from our taxable accounts, which means the money paid as taxes now will be gone and no longer able to grow, as opposed to letting both taxable and tax deferred grow and worry about taxes later. Also, with step up cost basis for the beneficiary, those money in taxable accounts look pretty good too, other than we have to pay dividends and interests each year.
Another thing brought up at tax seminar I attended is that there have been numerous bills proposed to eliminate the stepped up cost basis upon death.
and to clarify, I realize there is tax due on ira, I am not complaining about that, the complaint is changing the rule. As healthpack said, people made decisions based on what was allowed and they changed the rules.
 

joestein

TUG Member
Joined
Jul 13, 2005
Messages
2,373
Reaction score
2,125
Points
574
Location
Marlboro, New Jersey
Somehow the prevailing sentiment in this thread seems to be that there’s two options: either put your (in some cases ill prepared) heirs first at the expense of your own retirement or jusr “don’t care” what happens after you’re gone.

When actually you can put your own retirement needs first and still try to set things up so that anything left for your heirs is passed on to them in a way that minimizes taxes. It’s not necessarily an unknown and impossible to predict paradigm.

I am my mother’s primary heir. She is 80. It’s reasonably likely I will inherit her estate within the next decade. I am 54, will be in peak earning years and am limited in my job to $10k/yr plus catch up contributions to my 401k. So my Mom knows full well that I cannot defer taxes on as much of my income as can most people. She has therefore tried to plan to minimize my tax burden when she passed away. For our specific situation, it was her intention that I could collect on any inheritance in the form of her 401k over my life time and that I’d therefore be spared some of the taxes on it.

It would not be a matter of my quitting my job to avoid taxes. It’s a matter of how she structured her retirement savings and spending, which is now significantly affected by this change in law.

Caring about this does not make me irresponsible and dependent, nor does it make her extraordinarily selfless.
I feel your pain on the 401K. I am limited to around $12-13K per year plus catch-up starting this year. On top of it all, my firm only contributes a max $1000/yr. Luckily my wife can contribute the max and her firm adds on another 11 or 12K.
 

heathpack

TUG Review Crew: Veteran
TUG Member
Joined
Oct 22, 2008
Messages
4,651
Reaction score
3,750
Points
598
Location
Los Angeles
Resorts Owned
Hyatt High Sierra and Highland Inn
Disney’s Grand Californian and Hilton Head Island
Marriott Barony Beach and Mountainside
MVC Points
Sheraton Broadway Plantation
I feel your pain on the 401K. I am limited to around $12-13K per year plus catch-up starting this year. On top of it all, my firm only contributes a max $1000/yr. Luckily my wife can contribute the max and her firm adds on another 11 or 12K.

I’m capped at $10k per year and our match varies per year, is announced after the fact and is usually in the $2000/year ballpark.

I can avail myself fully of catch up contributions of course.

Our corporation also has a salary-deferment option, which is meant to be a retirement vehicle to help offset the 401k cap. I’ve been leery of this thus far (we’re in year 3 post corporate takeover) but one of my colleagues has looked into it and says it’s legit. I’ll probably start this next year.

We also have high deductible health insurance and I’m using the associated HSA as another retirement account- I’m funding that maximally which I think is another $7000/year. It was painful to pay $7500 in medical expenses out of pocket this year after my bike crash ($7500 is our deductible) but I figured, given the 401k limitations, that I was better off keeping that money in a tax deferred account than withdrawing it now. I’m gonna try really hard to just keep paying medical expenses OOP each year until we meet the deductible. Why? Lol because I care about the tax implications I guess.
 

Sugarcubesea

TUG Review Crew
TUG Member
Joined
Mar 9, 2014
Messages
4,029
Reaction score
2,939
Points
449
Location
Novi, Michigan
Resorts Owned
QH, HBC, VBHC, & Pinestead Reef
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.

This is the same advice I got from our attorney that set up our trust. He told me, I know how hard you have worked to save this money, use it wisely on your self and if there is any left when you die, its a bonus for your kids...

Now I just need to be able to stay at my company till I turn 65 and I'm golden, but a lot can happen between today and 2026
 

Sugarcubesea

TUG Review Crew
TUG Member
Joined
Mar 9, 2014
Messages
4,029
Reaction score
2,939
Points
449
Location
Novi, Michigan
Resorts Owned
QH, HBC, VBHC, & Pinestead Reef
I feel your pain on the 401K. I am limited to around $12-13K per year plus catch-up starting this year. On top of it all, my firm only contributes a max $1000/yr. Luckily my wife can contribute the max and her firm adds on another 11 or 12K.

My company used to have the cap on the HCE but we went to a Safe Harbor Plan in 2014 and now we are all able to contribute to the max allowed each year by the govt. I'm so happy because now in 2020 I can contribute $26K.
 

PigsDad

TUG Member
Joined
Nov 1, 2006
Messages
10,072
Reaction score
7,075
Points
898
Location
Colorado and SW Florida
Resorts Owned
HGVC Elite: SeaWorld, Surf Club, Charter Club, Valdoro
My company used to have the cap on the HCE but we went to a Safe Harbor Plan in 2014 and now we are all able to contribute to the max allowed each year by the govt. I'm so happy because now in 2020 I can contribute $26K.
Actually, the "all sources" contribution limit on a 401k for 2020 is $57,000 ($63,500 for over 50). "Regular" contribution limit is $19,500 ($26,000 for over 50), but if your employer allows it, you can contribute after-tax dollars up to the "all sources" limit (that limit includes employer match).

For example, my company allows an addition $19K after-tax contributions (all of which are put in as ROTH contributions), so I (being over 50) can contribute $19,500 + $6,500 pre-tax, and then an additional $19,000 after tax. Add that to my company's match of about $5,000, my 401k gets a total of $50,000 in contributions per year ($31K pre-tax and $19K ROTH).

Kurt
 
Top