How Do I Leave An Inheritance That Won't Be Taxed?
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- Опубликовано: 26 окт 2021
- How Do I Leave An Inheritance That Won't Be Taxed?
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I listened to this twice. Maybe even a 3rd time because I want the government to get as little as my money as possible.
Unless you are rich you will pay tax no matter what
Becoming a millionaire through a Roth IRA or a 401(k) involves different strategies for maximizing profits. A Roth IRA offers tax-free withdrawals in retirement, which can be advantageous if you expect to be in a higher tax bracket later in life. On the other hand, a 401(k) provides tax-deferred growth and potential employer contributions, boosting your savings.
Prioritizing effective personal finance management holds greater significance than the sheer amount saved, irrespective of income source. Consulting a certified financial advisor can offer tailored strategies to optimize financial results by reducing expenses and enhancing income, regardless of whether it's earned through employment or investments.
I had a situation similar to yours. I had a Roth 401K that had long met the 5 year rule. In Dec. 2019 I was preparing to retire in Jan. 2020 (over 59 1/2) and chose to transfer this Roth 401K to a Roth IRA with a well known brokerage firm. I was told by my brokerage firm that the 5 year rule would begin anew (I did not have an existing Roth IRA) so eff. 1/1/2024 I will have satisfied this 5 year rule. Additionally, I transferred a traditional 401K to same brokerage firm and have been making annual conversions to a Roth IRA but in a different account as I was advised not to comingle the two distinctly different contribution types. Good luck, another thing, my employer's plan administrator said I was the first employee to ever request a transfer of only the Roth 401K but I wanted to get it moved in 2019 prior to retiring to get the 5 year clock started. The plan administrator's company actually had to program their system to make the transaction possible which fortunately took just a few days.
I wholeheartedly concur. At 60 years old and newly retired, my external retirement funds total around One million two hundred and fifty thousand dollars.. With no debt and minimal retirement fund allocation relative to my portfolio's value over the last three years, I recognize the importance of a financial advisor. Neglecting them isn't an option; however, thorough research is vital to find a trustworthy fiduciary advisor.
Retirees who struggle to meet their basic needs are the ones who could not accumulate enough money during their active years to meet their needs.
Retirement choices determine a lot of things. My parents both spent same number of years in the civil service, but my mom was investing through a wealth manager, and my dad through the 401k.
How did you find a good finance advisor? How do you know if they are trustworthy and competent.
What my grandmother in law did was to withdraw money little by little to each of us to hold until she either passed away or recovered from her illness. Unfortunately, she passed away. However, what was left in her account was very little. Only that little amount was taxed.
Great problem to have. His daughter is very fortunate to have parents like that.
An inheritance should be enough for your children to do anything, but not enough to do nothing.
@@Mark_Trail 99% of folks I know that inherited enough to do anything ended up doing nothing. Not a very fulfilling life after buying the 5th Ferrari. You need a purpose.
@@Omikoshi78 Get a dog... to me THAT has purpose. I am personally SICK AND TIRED of working. I would love to go camping for A MONTH, travel the world, veg out in a log cabin all winter.
@@Omikoshi78 then I would say they were given too large of an inheritance. I'm talking tuition paid for, a modest home, maybe a reliable vehicle. After that, they're on their own.
@@Mark_Trail You are echoing platitudes from a guy with daughters who were given enough money to do nothing.....
Caveat Emptor
Roth IRAs, life insurance, trust, transfer what you can before dying, buy/give the right high end watches that hold or apprciate in value, buy real estate to pass along....
You don't pay tax on 401K contributions twice, only once when withdrawn by the owner or his/her heirs.
You pay tax on the earnings though. That is why it is best to use the ROTH. No tax on the earnings.
Lol........🤡
@@raddiemutto7934and no required distribution.
Prior to the "Secure Act" of 2019 (Setting Every Community Up for Retirement Enhancement Act), children who inherited an IRA could withdraw those funds over the course of their lives (Stretch IRA provision). The Secure Act eliminated this provision and now non-spousal inherited IRA's must be fully distributed in ten years. Very often, these distributions occur during the heirs highest income producing years and the distributions would be taxed at higher tax rates than if they were deferred until the heirs later (retirement) years. This is just another example of the underhanded ways Congress changes the rules in mid-stream to generate tax revenue to pay for all their spending.
The caller had the right idea. It's just a matter of managing the distributions with an eye on the tax brackets. Some strategies include Roth Conversions, where the pre-tax IRA is converted to a Roth IRA, tax is paid at the time of conversion, and any future gains accumulate tax free (provided the politicians do not throw another kink in the process).
Very well said, thank you. The Security Act of 2019 threw a huge curveball to financial planners and who knows what politicians will do in the future. I get it though, the Treasury receives taxes on these distributions in a shorter term versus over a lifetime. As I approach retirement, I realize it's more about the tax scenarios than about the amount saved.
There are not federal estate taxes on estates below about $11 million right now (just over $20 million for married couples). That may revert down in 2025 after the 2017 tax act expires. If he has $4 million in his portfolio, he's not going to reach that level where estate taxes are an issue. California has an estate tax I believe, but I don't recall the amount. If he moves to another state, he can avoid state estate taxes and likely won't have federal taxes anyways.
For the inherited IRAs, they would have to be fully withdrawn in 10 years under the SECURE Act's new provisions. So he is right about that.
For brokerage accounts, his daughers will receive a stepped-up basis in the value of the accounts when they take possession. They will be subject to capital gains on those accounts if/when they sell assets in the account.
He's thinking, that's for sure. I would strongly advise getting an estate planning attorney, financial planner, and CPA in on putting that all together.
Thank you... good information.
just to clarify for others reading. They will be subject to capital gains only on any *additional* gains over and above the stepped up basis granted at the time of death/possession
The $4,000,000 will be taxed as income to the daughter.
Only a fraction of people will ever have a taxable estate. With the increase in the estate tax exemption and the implementation of portability, you would have to have over $13 million in assets if you're single, and double that if you're married to even have to start worrying about estate tax. the exemption is set to decrease to about 7 million in 2026, but a married couple would still need more than $14 million until they have to worry.
Some of the people in this comment section need to rewatch and listen to the video before they comment.
Spend your money and time on your children while you're alive and can enjoy it together. No tax. If you give cash just keep below non taxable amount
What Dave doesn’t mention but is implying the caller should use is called Step Up Basis.
I love the mini sarcasm at the end
I heard some very rich people buy hard assets like 150,000 dollar watches and leave those to their heirs so they can be sold
Hard assets are good for the coming hyperinflation as well
@@ellencox8415 facts
Gold. Works a treat.
Things like that can disappear.
@@genxx2724 I lost all mine in a tragic boating accident.
Revocable Living Trust drawn by a lawyer. An irrevocable family trust may also use life insurance to transfer wealth.
"The government totally sucks."
-Tenacious D
Two words....Living Trust.
No need here. The IRA will skip probate if the daughter is listed as primary benefactor.
Got to love Dave😊 he tells it like it is.
Sometimes he bends the truth a little though when it comes to political stuff. But I love his advice when it comes to getting out of debt.
Convert 401K to Roth and invest in items that pay dividends. Person can live on the dividends tax free. Inherited people can also for 9 years live on the dividends tax free. Then will have to take principle from the Roth, but that is also tax free since the taxes were already paid at the time of conversion.
I have a disabled daughter that will need personalized support (adult Nanny) so I am very concerned with how to leave resources to my other kids that they can use to assure she is taken care of without putting a large financial burden on them.
Very simple, trust for kids benefit
Yes a trust
Roll to Roth!
I wish he would have explained what this guy did cause I understood maybe 5% over it
Its complex to explain, but in brief you are allowed to move specific amounts of money out from tax shelters accouts per year with age restrictions. The caller is making a plan to do this so as much of his life’s savings are handed down to the kids or beneficiaries of the estate.
Its easy to call people rich when they are not. Take a 3 generation family farm where the owner / parent passes today, giving the farm to the kids.The way it works today the kids often must sell the farm to a major corporation just to pay the inheritance tax.
Lets say you feel this inheritance tax on multi-generation family farms is fair. If so, why does a family farm need to re-pay this inheritance tax every 30 or so years as ownership transfers from one generation to the next when the corporation never has to pay this tax, ever?
Its the re-paying of the inheritance tax that I think Dave is referencing when he said it was already paid once.
There are new, complex ways around this tax, but its too complex to explain in a RUclips comment, and takes a lot of planning.
I don't think DR understood either....
He is planning to leave his daughter his after tax brokerage account with appreciated stock holdings. When he dies, she will be left those stocks and under the current estate laws, would use a "step up in basis" to avoid having to pay taxes on the gains from the stocks up to the day dad passed.
Wouldn't there still be a "step up in basis" for the funds from a traditional 401k or IRA?
The call is about 401 or IRA. What does Dave mean when he said we already pay taxes on it once? Just assuming this is a traditional IRA and taxes where never paid.
Also if he has the time could they consider a Roth conversion?
You missed the brokerage account part of this video
He's talking about the brokerage account. Normally it would be capital gains based on your income but if it's inherited I don't believe the heirs would owe CP tax on the amount it had appreciated up to that point.
@Farid El Nasire families do not pay estate tax
Don’t overthink the whole topic of taxes when giving money to your family. Grab a tax lawyer and he will guide you in the process. It’s a consultation and you’re done. I think people should worry in actually LEAVING MONEY to their loved ones and not a burden of debt.
Or she😂
I dont get all of this sit
There should never be a tax on inheritance. And this is coming from a guy who is not getting anything because my parents are very poor.
So what is the best way to leave your inheritance (house, 401K/IRAs, cars)? is it in a will, in a trust, or just add them as beneficiaries, etc...?
Living Trust
Depends on what you want. Put it in a trust to avoid probate and your benefactors from waiting to get their inheritance and add any stipulations you would like. Otherwise doesn’t matter too much.
Does not exactly give me a ton of confidence in the financial “expert“ that Dave is working with and endorsing
Anytime you can tell the government to shove it I love it
Give $14,000 dollars per year per person from both you and your wife.
That gift limit has increased to $15,000 per year now.
He stated that the brokerage account was "taxable". I suppose that capital gains tax would apply there, which would be less than the income tax applied to the IRA's. Could anyone comment knowledgeably on this?
The brokerage is after tax money. So, the gains could increase without ever being taxed, so long they do not sell anything, under current law. However, after a transfer, or inheritance, I'm not sure what the tax implications would be. Potentially nothing, until you sell. (Realized capital gains)
So when an "estate" is created upon death, all the non-401k securities held within it are valued at their market value. If the total value of the estate exceeds the tax exempted amount (like $11.7 million or something like that, $23.4 mm for married couples), then the amount in excess of the exemption is taxed at the estate tax rate. The tax rate exceeding the exemption is marginal; however, it is 40% for anything over $1 mm. The consolation for the inheritor is the securities' taxable basis is reset at the time of the estate's valuation, meaning any subsequent capital gains will start at that price point.
Step up in basis provision would allow daughter to avoid taxes on appreciated stock gains upto the day dad passed.
@@mikebarton8671 estate tax above $25 mm only federal then each state does own thing
The brokerage would not be taxed unless it exceeds the exclusion amount on inheritance taxes which is over $11,000,000 at the time you asked this per person so $22,000,000 per couple.
Yes you got it right pay your fare share then pay again when you die. Never thought this was fare to anyone.
Fair
@Austin Duke i am sorry that my ancestors didn't blow all their money and decided to pass it on to future generations.
Fair share when you live, fair share when you die, fair share when your children take out money, fair share when they die....
@Austin Duke ah yes the aristocracy of the single digit millionaires. They're the truly evil ones not the Technocracy being in cahoots with the government... they just pulled themselves up by their bootstraps and didn't actively work to destroy any start ups.
Isn't the first $7 million or so going to be exempt, anyway? At least from federal estate taxes? ( I think it's around $13 million, this year.)
If you're leaving more than that, you should be talking to an estate planner who's looking at your specifics, not a talk show host who's giving you two minutes of attention, no matter how smart you think he is.
If it’s in a retirement account like that’s never been taxed whoever i get its it has to pay income tax. They will have 10 years to draw in the money and be taxed when it comes out.
Until the government changes the step up basis
Leaving it as a Roth is better
Can only put so much money in a Roth, these people are talking millions of dollars.
Enjoy listening to how the tax laws work in the USA. We are lucky that New Zealand does. Or have inheritance or gift tax laws.
Life Insurance could help with this…
What happened to the tax free ROTHs?
My Get my Fathers Gold coin’s
That’s a generational transfer of wealth
No Taxes in the transaction too
A Roth IRA is not taxable as an inheritance - Correct??????
Correct, but an inherited Roth IRA must still be depleted within 10 years.
He Daddy, would you consider adopting a 52-year-old son? Asking for a friend.
We're foreigners, we dont have to pay estate tax for only the first 60K dollars. Whatever amount is more than this will be taxed at 40% after death.
1031 exchange
Today, put your child on the account. 36 months from now, it is hers as well. There is no estate tax, income tax only
There is no step up in basis in this approach. Results in paying unnecessary taxes when the underlying appreciated assets are sold.
Can anyone explain this in English?
If your old and have spoiled rotten kids, just pass your inheritance onto me 😁 I'm just out here trying to buy a house.
Have a joint acct with your children/child
That they dont quite know about?
In before Casey the Spammer!!!
Two questions.
How did he make his money?
Is he adopting? Lol 😆
Life Insurance
Really BAD idea. RUN
@@rajbeekie7124 The question was asked how to leave an inheritance tax free to his kids. Life insurance is one of the few things that will do this.
What is the tax dodge? Taxes need to be paid on that IRA... what is the big deal?
Why not roth conversions?
Most likely the tax implications. He has $3 million in IRAs and all of that growth has yet to be taxed. A Roth conversion is a taxable event and the growth immediately gets taxed which means he would have a large tax bill. A Roth conversion is not always a best option when considering the taxes generated and the time to 1)break even and 2) benefit beyond the break even point.
@@vickicerruti and taking it out and reinvesting it in a brokerage account has the exact same tax implications
@@matthewmaurin9054 In the strategy the caller described, he would be living on the money in the IRAs and drawing them down over the remainder of his life. He wouldn't be taking the significant tax blow a Roth conversion would bring and any growth from the brokerage account would be subject to capital gains tax, not income tax.
Umm, no, if it is in a 401k you haven't paid taxes on it once already.
He said it was a Roth 401K.
@@ellencox8415 Never did anyone say the word “Roth.” It’s $3 million in traditional IRAs. That means the contributions were pre-tax. When he makes withdrawals, ordinary income tax must be paid on all of it, both contributions and growth. When he turns 72, he will have to take required minimum distributions. This will be astronomical sums each year, with a huge amount of tax due.
The taxable brokerage account, on the other hand, was taxed all along. The contributions were made with money that had already been taxed. The dividends were taxed in the year they were paid. It will pass to the kids with a step-up in basis, meaning they will receive it at the value it holds on the date their father dies. They will enjoy their parents’ gains in stock value tax-free.
@@genxx2724 hi there. So the brokerage account sounds like it operates like a Roth, where it is built with after tax dollars and grows tax free. So what is the difference really?
@@DoctorSmartyPants First, a taxable account, an IRA, and a Roth IRA are all brokerage accounts.
A taxable account is NOT like a Roth. All of the gains in a Roth are tax-free. In contrast, when a taxable account generates dividends and interest, those gains are taxed as income in the year received. When the holdings are sold, they are taxed at the capital gains rate.
Eagles and buffaloes
If you're talking about a deferred retirement account, you haven't paid your taxes on it once. Such vague advice here that the caller may be paying more taxes than they should. By placing themselves in a higher tax bracket for however many years.
Nope, they were talking in codes about step up basis on taxable account. You can’t use this trick on retirement accounts.
You leave it there, and then borrow against it at 2% and do arbitrage, pass it down tell them to do the same, it'll last until the end of time. That's how the top 1% do it.
Not entirelly true. The top 1% can only do that because they have enough cash flow for the monthly payments.
If you borrow 500k against it to pay for a home. You still need to cash flow the payments on that borrowed money
@@ashastings92 you're thinking about the wrong strategy then, this can be done at other levels, you don't need to be in the 1%, you just need to pick the correct assets. Let's give an example, your parents left you a couple million (I wish lol). You borrow 1 million using a security backed loan, at 2% that's 20k you have to pay back in interest a year. And you put that million into a stable coin or another fixed income asset, earning 9%, that's 90k a year you're getting paid minus the 20k. You just pocketed a free 70k...and you never have to work or at least it will be a choice, you can start up businesses, aquire real estate ect to make more and keep contributing back into the fund. All meanwhile you didn't touch the nest egg and it keeps growing and growing then you pass it down to the next.
@Alex P the minimum net worth of the 1% is 11.1 million according to investopedia, so let's go with that. Why do you think fixed income assets exist? To preserve capital. This can be pulled off at lower levels, a million will do. You do gotta be selfless and smart, not cash it all out to make it last to build generational wealth out of it tho.
@@user-jy7yw5kw3w if you borrow a million at 2%. Yes the interest per year is only 20k. But you still have to pay back the principle that you borrowed. So your annual payment is not 20k. Its 20k plus the principle. If you borrow that million on a ten year term. Now the P is 100k a year and the I is 20k so you owe 120k a year. Not 20k
@@ashastings92 this is not how borrowing against your portfolio works 🤦♂️ there is no fixed term, you can literally leave it in there for as long as you'd like and just make your interest payments. If it was 120k on a million no one would do it.
The best thing to leave your kids is not a dollar bill. It's faith and the lord jesus christ and that will never perish or pass away
The real answer is a permanent life insurance policy, but Dave can't say this.
I'd rather use a trust.
@@astroman30 That has no effect on taxes. Life insurance is tax-free.
Why can't dave say it?
@@matthewso1315 I could be wrong, but I doubt $4 million dollars can't be passed through a life insurance policy. Our CPA recommended a trust to minimize probate.
@@astroman30 Probate and taxes are two different topics. Life insurance proceeds are tax-free. Spending some of their money on life insurance premiums will provide exponential tax-free proceeds to the kids. Yes, they can buy $4 million worth if companies will sell it to them. Will they spend all the spare money from their 401(k) on the premiums? Unlikely. But it is one piece of the puzzle.
...and thats why hes loaded...lol. nice tax impact reducing solution.
Another withdrawal strategy is to be aware of tax bracket jumps ... at $160k you're in the 24% tax bracket ... at $170k you're in the 32% tax bracket ... that's quite a jump.
That would also be your marginal tax rate and not your effective tax rate. State taxes and their respective rules would affect you more. Some states are very retirement friendly while some aren’t.
Only $10K would be taxed at 32%.
@@genxx2724 Understood ... everything above ~$170k would be taxed at 32% (or more with the next jump)
I wish my taxes were this low. British taxes suuuucks.
In the UK the lowest income tax is 20 percent with a 12 ni and 20 sales tax on almost everything. The poorest here pay 52 percent.
And 40 percent income tax kicks in for anything above 50k.
Look up Andrew Wommack's "A Better Way To Pray".😇Gift.
Become a politician.
Im fine with paying taxes. Im not fine with how theyre wasted and abused. Im especially not fine with how many of my tax dollars will get used blowing up brown children overseas.
I want schools. I want good roads. I want hospitals. I want people to have good jobs doing honest work. This mad scramble against me makes it feel like getting robbed. It does.
It feels like that because thats what it is. People trying to get contracts for prop planes and bailouts and yada yada yada.
I very much want to ask what i can do for my country. The people in this town arent my country. This place is the swamp.
Biden says hello...
This is when leftists say, "This guy should have higher taxes and pay his fair share after working and saving all his life!"
My goal is to die with about $10 mil worth of debt…
You are good parent.
john Smith Sure am. Taught them how to generate wealth without relying on others…They are doing awesome…
@@mambofuego5101 Yes, and you will definitely change your family tree dying with 10 million in debt and you will teach your kids a life long lesson on how to be stupid. I hope your kids don't listen to you about "HOW" cause your end game should be called "HOW NOT!!!"
genius
This is how wealthy people stay rich 🤑! Most Americans inherit their money 💰! Greed is good 😊
Most Americans inherit their money? Where did you hear that? 😂
@@devinhawkins249 I see this rich 🤑 folks here in America 🇺🇸! Kardashian lifestyle
@@roolyfe You are sadly mistaken Roo
@@roolyfe the Kardashian lifestyle Americans die broke.
@@TopShot501st agreed! Live free or die
Or you can put it in a crypto wallet and just give them the wallet
What is this obsession of leaving kids millions of dollars they will for sure waste. What an ego trip. 100% sure your kids are not that great and 99% sure the money will be gone in 1 generation. 🤦♂️🤦♂️🤦♂️🤣🤣🤣. Just spend your freaking money.
You’re making assumptions that his kids are irresponsible. So what is the issue for wanting him to pass on his legacy to his children?
A rich guy complaining about taxes.. shocking 😂
Another day another person not trying to pay taxes. Pay what you owe. Velocity of money or lack there of stifles the economy.
“The most patriotic thing a citizen can do is pay as little tax as possible.” - Ben Franklin
They've already paid taxes once on their money.
The government wastes our money.
I don't understand not paying taxes and fees either. I love tax season because it makes so much possible and that is even taking into account all the waste. Social Security and other programs are possible due to taxes so why not pay them?
OP comment proves he knows NOTHING about acquiring wealth and how much this man has already paid in taxes.
So bizarre that these people claim to be Christians.