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FYI: Roths aren't always a good way to pass down wealth, experts say. Whether such a conversion makes sense depends heavily on tax rates—of both the account owner and heirs—and whether lawmakers approve proposed rule changes that could eliminate some of the estate-planning perks of Roths. Regards, Ted http://online.wsj.com/articles/should-i-leave-a-roth-to-my-heirs-1410120116#printMode
All of these Roth conversions have also helped pre-fund the tax coffers of cities, states, as well as the federal government.
Roth IRAs have many other benefits other than just estate planning. For a young investor with a limited income, there are tax credits benefits when contributing to a Roth. For the temporarily under employed or early retiree there are conversion opportunities as their income typically has fallen into a lower tax bracket. Not to mention that taking distributions from your Roth account has fewer restrictons, penalties and tax consequences when compared to traditional IRAs.
My understanding is that an inheritance in the form of individual stocks is one of the best methods of helping your heirs manage tax burdens since the cost basis of the individual stocks inherited adjusts to correspond with the stock price on the date of death. This, at least, eliminates a generation (your life) of capital gains taxes for your heirs.
My understanding is that an inheritance in the form of individual stocks is one of the best methods of helping your heirs manage tax burdens since the cost basis of the individual stocks inherited adjusts to correspond with the stock price on the date of death. This, at least, eliminates a generation (your life) of capital gains taxes for your heirs.
Yes, essentially your cost basis reverts to the current price through a step up basis when you inherit. That saves you paying the capital gains the deceased would have accumulated.
The Roth was one of those things where the government got it right. I'm not sure of any justification for requiring mandatory withdrawals for them. While you don't want wealth concentration, Roths are a tool for middle class families to stock away wealth in a tax beneficial manner. People don't get rich off them. So unless the administration is trying to encourage spending...?
People should also be aware that inherited IRAs are no longer afforded bankruptcy protection per a Supreme Court ruling last week. Essentially the Court said they aren't "retirement money" if inherited. You can try to roll inherited IRAs over, but that has possible tax consequences.
People should also be aware that inherited IRAs are no longer afforded bankruptcy protection per a Supreme Court ruling last week. Essentially the Court said they aren't "retirement money" if inherited. You can try to roll inherited IRAs over, but that has possible tax consequences.
Apparently, spouses may be affected by Court decision too if they do not roll over to their own account:
".... The case involves a daughter’s inherited IRA of a daughter and not that of a surviving spouse. The opinion implies that the surviving spouse’s rollover IRA is the person’s own IRA and thus exempt in bankruptcy but, if the surviving spouse does not rollover, then the IRA is an inherited IRA and subject to the same rules as an inherited IRA of a non-spouse beneficiary. The opinion says no more on that subject and does not address whether a surviving spouse’s rollover IRA is comprised of “retirement funds” or whether the surviving spouse’s inherited IRA does not have “retirement funds.” Since the funds would be the same in either case, that would be a difficult distinction. The opinion implies that if a surviving spouse does not rollover an IRA and thus does not make it his/her own IRA, the result would be the same as the daughter’s inherited IRA, as the IRA that is not rolled over by a surviving spouse is also an inherited IRA. The Court states: “If the heir is the owner’s spouse, as is often the case, the spouse has a choice: He or she may “roll over” the IRA funds into his or her own IRA, or he or she may keep the IRA as an inherited IRA (subject to the rules discussed below).” ... Nevertheless, while not clear, the Court seems to imply that an IRA rolled over by a spouse beneficiary will be treated as the spouse's IRA, rather than an inherited IRA, and such IRA will be an exempt asset. If the spouse chooses to treat the IRA as an inherited IRA, however, it will not be an exempt asset."
It's hard for me to read around the WSJ ad covering 80% of page and was unable to cut and paste the relevant passage. But, I'm very perturbed to read that Obama's 2015 budget would, if approved, make Roths subject to mandatory withdrawals at 70.5 the same as for traditional IRAs.
Let's hope that doesn't go through. Ability to defer withdrawals (and taxation) on that portion of retirement investment was the #1 reason I prepaid considerable taxes in order to convert a sizable portion of my Traditional to Roth only a few years ago. (My ... how quickly things can change.)
Issue here is financial "planning". I can invest and earn a decent return in a variety of ways (as can you). But, if government can change the rules in the middle of the stream ... how can anyone plan effectively for the future?
Edit: The thinking there is curious. Are they hoping for a court challenge as to whether the change could be applied retroactively? Than, if successful in court, perhaps implement the next stage - fully taxing Roth withdrawals? OMG - I'M beginning to sound like Fox News,
@hank "It's hard for me to read around the WSJ ad covering 80% of page and was unable to cut and paste the relevant passage." Hank, just click off the add, and read a clear and easy to read printer-friendly version. Regards, Ted
I know what you're saying Ted. But on my IPad with Safari there's no place to click-off the ad. Tried multiple approaches.
Any more like this and I shall ask David to reduce your pay by 50%!
Thanks
PS - First read the link on the one Derf inadvertently posted. Yes, was able to turn off the ad that one time. Maybe they have it set up so you can only read it once? (I suppose deleting cookies and trying again would help if that is the case.)
Comments
Roth IRAs have many other benefits other than just estate planning. For a young investor with a limited income, there are tax credits benefits when contributing to a Roth. For the temporarily under employed or early retiree there are conversion opportunities as their income typically has fallen into a lower tax bracket. Not to mention that taking distributions from your Roth account has fewer restrictons, penalties and tax consequences when compared to traditional IRAs.
My understanding is that an inheritance in the form of individual stocks is one of the best methods of helping your heirs manage tax burdens since the cost basis of the individual stocks inherited adjusts to correspond with the stock price on the date of death. This, at least, eliminates a generation (your life) of capital gains taxes for your heirs.
Please correct me if I have this wrong.
The Roth was one of those things where the government got it right. I'm not sure of any justification for requiring mandatory withdrawals for them. While you don't want wealth concentration, Roths are a tool for middle class families to stock away wealth in a tax beneficial manner. People don't get rich off them. So unless the administration is trying to encourage spending...?
People should also be aware that inherited IRAs are no longer afforded bankruptcy protection per a Supreme Court ruling last week. Essentially the Court said they aren't "retirement money" if inherited. You can try to roll inherited IRAs over, but that has possible tax consequences.
American Bar - Supreme Court Rules Inherited IRA Funds Not Exempt In Bankruptcy
Let's hope that doesn't go through. Ability to defer withdrawals (and taxation) on that portion of retirement investment was the #1 reason I prepaid considerable taxes in order to convert a sizable portion of my Traditional to Roth only a few years ago. (My ... how quickly things can change.)
Issue here is financial "planning". I can invest and earn a decent return in a variety of ways (as can you). But, if government can change the rules in the middle of the stream ... how can anyone plan effectively for the future?
Edit: The thinking there is curious. Are they hoping for a court challenge as to whether the change could be applied retroactively? Than, if successful in court, perhaps implement the next stage - fully taxing Roth withdrawals? OMG - I'M beginning to sound like Fox News,
Regards,
Ted
Any more like this and I shall ask David to reduce your pay by 50%!
Thanks
PS - First read the link on the one Derf inadvertently posted. Yes, was able to turn off the ad that one time. Maybe they have it set up so you can only read it once? (I suppose deleting cookies and trying again would help if that is the case.)
http://www.marketwatch.com/story/want-to-leave-a-roth-ira-to-your-kids-beware-of-taxes-2014-09-09/print