I was mostly directing the comment relating to the tax consequences while they are still alive. There was quite a bit of discussion of people expecting very low income in retirement with substantial assets in retirement accounts that weren’t factoring RMD into that discussion.
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Exception being that spouses don’t have to deplete within 10 years.
And those of us who were lucky enough to receive inherited IRAs before the change was made have no limit on the number of years. My mother died in 2003 and left me a small inherited IRA. I was required to take a RMD because she was already doing so. 23 years later, I’m still collecting my once a year small check. But I do realize that folks setting up accounts now don’t have this if leaving to their kids.
thank you for the details, but my point remains: there is no guarantee that step-up basis remains for years.
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Yes, my original comment on this topic indicated, “non-spouse beneficiaries.” However, I failed to reiterate that.
And, agree - we are at the whim of Congress and the unknown date of our demise in terms of how things will be in the future. Someone upthread mentioned that the step-up in basis could go away.
When my parents were killed, the federal estate tax exemption was $600,000. A far cry from what it is today!
I am the secondary beneficiary and then the grandchildren. So, if I’m removed from the beneficiary list, can my husband “pass thru” the inheritance to the grandkids so it is treated as an inheritance and not a gift, and does it have to be all of it or can he “pass thru” part of it?
This will be the issue with us. We saved on taxes for so many years by making IRA and 401(k) contributions and now we have sizeable retirement investments. When we do the RMAs for these, they will put us in a high tax bracket and it may even mean we have to pay increased Medicare premiums. Did we make the right decision back then, should we have saved more not in 401 (k) accounts, who knows?
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Roth IRA didn’t exist when most of our generation were saving. I’m sure we never thought that our income would grow so much that IRMAA could be a thing
As long as my husband is here, the exemption for IRMAA will most likely not be an issue. When one of us is gone, that will be the case.
For crying out loud, we saved for retirement. Our income was so low that one of our kids qualified for a lot of needs based aid. We weren’t rich but middle class. Not that middle class that doesn’t qualify for needs based aid and is astonished at the cost of private college. That it was at all a possibility that we would be looking at IRMAA is mind blowing.
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You should discuss with an estate attorney to be sure of the intestacy rules in your state. If your husband is named and you’re the contingency, in theory if both of you disclaim, the estate would then fall under the state’s intestacy rules. This was something that came up recently in a discussion with our family. In OUR case the two children of the potential deceased disclaiming the inheritance would resort in the grandchildren inheriting under current laws. The potential deceased had no siblings and there is no divorce or adoption in this family. Some states have provisions for siblings of the descendent for example, step and adopted children can also complicate things so it’s usually best to have the estate documents reflect the desired outcome. Just pointing it out as an option if the FIL doesn’t want to not name his son.
Yes, I think that’s what’s going to have to happen, or not because my husband just doesn’t want to appear greedy….it’s called planning, but not to him.
consider some Roth conversions to lower the future RMD, particularly if one or both retire before taking SS.
OTOH, having a few mill in tax-deferred accounts is better than the alternative.
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It depends on the retirement assets. You probably won’t need to pay taxes on withdrawals from a Roth or HSA. My parents keep the bulk of their retirement assets in CDs, which also are not taxed upon withdrawals. There are many ways to live on untaxed assets during retirement.
Beyond this, this forum skews towards extremely high income/assets. The median income for a retired couple was under $60k in latest census. Many of this group still go on vacations, pay for car services, leave assets to their children, etc.
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We are older parents and similar to those in the WSJ article. I was 43 and 46, my wife 36 and 39, when our children were born. We have been very fortunate and have more than enough assets to last us through retirement. I work and we are still accumulating wealth, much to my surprise. We live modestly other than traveling a little more as we age. I had a little financial help from my parents when I was young, and it made a big difference in my fiscal trajectory.
We realized early on that we would sadly not have as much time with our children as most of our peers and would not need our assets to last as long. It’s a unique situation. We made the decision to transfer as much of our wealth as possible to them while we were alive.
After each child was born, we began gifting them the maximum amount of money we could without triggering a gift tax return. At first we set up Crummey trusts with planned payouts to them of 1/3 of the corpus at age 25, 30, and 35 years. There were provisions for the trustee to withold payment in case of substance abuse or other factors. After the chidren were 18 and we were comfortable with their level of maturity we began gifting those sums directly to them. We wanted them to learn how to invest on their own and also build a net worth outside the trusts.
When my mother died I disclaimed the majority of her modest estate to them. We also paid for their undergraduate degrees. When DD returned to school for an MBA after three years of work we paid her tuition. She used some of her annual gift for living expenses.
Needless to say, they both have a substantial net worth at a young age. There were some years when we had to suspend or reduce gifts due to irregularity of my earnings, but we’ve been able to give them meaningful early inheritance.
We are pleased with the results of our decison. Both are leading fulfilled lives, working in jobs they enjoy, and also living comfortably and well below their means. They manage their own investment portfolios with the help of our family financial advisors, and they often consult with me when they make financial decisions. DD is using some of her money to make a down payment on a condo next month, and DS will be able to buy a home when he is ready. The financial backstop has given them freedom to make decisions that their mom and I never experienced.
They will inherit a substantial estate when we die, but it’s gratifying to see them benefit from an early gift. In our case, giving an early inheritance has given us much satisfaction and joy.
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I think this is a very good case of gifting kids early. The parents have enough assets, there is no strings/expectations attached for the gifts and the kids are able to put the resource to good use.
In my culture, there are a lot of parents who give their kids their life savings for a larger home with expectations of living with their kids or have their kids take care of them when they get older. It has led to a lot of disappointments on both sides.
My friend is a senior person at a major bank responsible for compliance. They monitor their customers’ investment and spending patterns as part of “know your customer.” (KYC) She said they have often observed abuse of kids with their parents assets. There is a case where a daughter had convinced her mother to buy a very luxurious house so they could live there. Their FA actually reported it to compliance and they tried to do as much as they could to stop it (meeting with the mother, freezing the account for a short period of time), but there was only so much they could do.
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Thanks for saying that, @oldfort.
I can confirm what you are saying about kids taking parents’ life savings. I had a part time career in banking, and spent over 30 years on bank boards as director or chairman. We would review SAR’s (suspicious activity reports) monthly. Elder financial abuse, often perpetrated by children or grandchildren, became the number one origin of those reports.
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@kiddie, I was a very aggressive saver into a defined benefit plan so will have very large RMDs. Given MA estate tax, I was thinking of accelerating my RMDs.
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I am also now in MA - yep - that estate tax is a killer here.
I just checked on what impact it would have to use trusts to separate one spouse’s assets from the other spouse’s assets. This does not seem to help much. Details might vary depending upon the size of a couple’s estate.
To me the MA estate tax appears to be a major reason for the various successful high tech employees who spent their careers in MA to move somewhere else after retiring. I do know some people who have already done exactly that.
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I believe there is a $2 M exemption per person in MA so $4 M per couple. A trust can delay the total payment of tax until the second member of the couple has died. But, it can’t do any more. Yes. Tech folks and others move. An acquaintance who is a retired life science VC moved just before the implementation of the MA millionaire’s tax. NH is a frequent residence as is Florida.
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I know there was a lot of Roth conversion discussion up thread…I was just advised to do this and you guys let me know if it makes sense.
When I retire, my only source of income would be SS. I have most of my assets in IRA, and then a after taxed brokerage account.
From the time I retire to when I turn 73 when I need to take RMD, I could fund my gap spending through my after tax money, so it would bring my taxable income very low - and therefore low tax bracket.
I could convert IRA to Roth and pay very low taxes (only convert enough so my tax rate would stay around 15-22%).
Living in NY I also have high itemized deductible, which would also allow me to convert more IRA to Roth.
My RMD may be a bit lower (probably not much) because of the conversion
We are doing the same thing you describe above, good to see my approach is validated here.
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