I’ve heard that when people do that they should explicitly say they intentionally omitted the next generation. True?
Reminder - Do make sure to tie assets to the trust (assign as beneficiary). Our advisor said the tendency is to procrastinate on that important second step.
Question;If your trust is registered in one state and live another state, do you pay the estate tax to the state where the trust is registered or the state where you live/die.
Yes, they are drafting up everything now and my brother thankfully is well versed. Everything (all funds, cars, etc) is in a revocable trust except the house is irrevocable.
We just updated our trust and finished assigning it as a beneficiary to the assets two days ago! That was new since we first established the trust (1992, I think). Makes sense!
??? - are you saying that old trusts did not need to do this?
To tell you the truth, I honestly don’t know. A decade or so ago H had a generous work benefit for financial planning. One year we took the trust to a respected estate attorney. He didn’t find any glaring errors. We had so many amendments over the years as our situation changed, and laws have changed since 1992. It was time for a total revamp.
What we did this week is file Memorandum of Trust forms with our financial institutions (they each had their own form). Hadn’t done that before as I recall.
Congratulations. Could this enable you to put (additional) money into a Roth IRA? No taxes on interest/dividends/cap gains and good for your beneficiaries if you end up not needing the money.
Our attorney recommended not making our trusts the beneficiaries for our retirement accounts.
Unfortunately I don’t remember why exactly.
We were told the same. I found this online: It remains possible to make the beneficiary of a retirement account a trust, but that trust cannot be an “eligible designated beneficiary.” A trust beneficiary will either be subject to the 10-year distribution requirement, or an even more limited 5-year rule. In addition, the income tax impact of a trust beneficiary can be significant. Unless the trust is structured to pass out all distributions received by the trust each year, distributions will be taxed as income to the trust. Trusts reach the highest federal marginal income tax rate at much faster than individuals or joint filers, so accumulating distributions within the trust is rarely the best choice to maximize the value of a retirement account. In 2021, trusts reach the maximum federal marginal income tax rate (37%) after only $13,050 in income, as opposed to $523,600 in taxable income for a single filer. For all these reasons, under the SECURE Act, this route has become much less attractive to those with large retirement accounts.
You got me curious so I dug out the trust wording. The Memorandum of Trust was only filed where we keep savings & checking, not investment accounts. There’s not a big amount in those accounts, and will likely be quickly liquidated after our deaths.
Aren’t there income limits on contributing to Roth IRAs? I may be mistaken
Yes, unless he meant for you to convert existing IRA funds to Roth? AFAIK, there are no income limits on that and the entire amount of the conversion is considered taxable income in the year you convert.
And, I may also be mistaken here!
Yes @Hoggirl, there are income limits for contributions but not for converting, as @CT1417 says. In 2024, the income limit for contributing to a Roth IRA is $161,000 for single filers and $240,000 for married couples filing jointly.
Backdoor Roth contributions (via conversion from traditional) are possible at any income. I expect the bigger issue is the $7k/$8k max contribution. Mega-backdoor may allow larger contributions, but it’s only possible with a minority of employer 401k plans.
My general rule of thumb for such things is to choose the highest after-tax, risk adjusted use for your dollars. For example, highest after-tax risk adjusted return might be employer match or high interest debt (credit card debt). If that’s not available, next highest might be unmatched tax advantaged accounts such as IRA or HSA. If that’s not available, next highest might be moderate interest debt. If that’s not available, next highest might be treasury products or after tax brokerage investments, depending on risk tolerance.
Figuring that some of you government worker types might know about this. My niece was looking into her retirement at her govt job, and when I researched it, I see that there is no social security contribution, no pension, but if she contributes 10% of her salary to her 401K, she will get a 12% contribution from the govt, but only gets to keep part of it unless she stays four years.
Reading about how govt jobs can get away with not contributing to social security (I’m assuming that certainly she gets no credit during these years), it seems like they can only do that if they provide a pension, not just a 12% 401K match. Does that seem legal? Allowed? Sounds like poor benefits to me.
Federal government workers do not contribute to SS…and that has been the case for a while, I believe. I will say a 12% contribution is very generous, in my opinion.
Honestly, a federal worker would need to verify this. Maybe @HImom knows?
Sorry, but that is not true. I was a federal employee for over 30 years, and I contributed to and will receive social security.
I’m guessing @busdriver11 ’s niece is not federal government.
@1214mom sorry about my error. The federal employees I know didn’t. Wonder how that is decided.
If they started with the federal government prior to about 1984, they likely did not contribute to social security. Since about then, people do. (I missed the “old system” (no social security) cutoff by months…
Thank you. Most of the people I know started working for the government prior to 1984.