Tax reduction strategies in ER

[MBAustin]

While I'm interested in not paying any more taxes than necessary, I'm also not stressing over it. As I told my mother this year when I finished her tax return, since the money she is spending now wasn't taxed when her husband earned it, nor was the growth taxed, she's just paying taxes now that they didn't have to pay back then. She was much happier once she understood that.

 

[allanlevy]

indeed you are correct

 

[allanlevy]

Sounds like you are describing a spousal A/B trust. The easiest way to think of it is such a trust persists after the first person of the couple dies. The survivor does not own the deceased spouse's trust, he/she is only the trustee of it, and thus when the survivor also dies that trust is not considered part of his/her taxable estate.

It would be fantastic if tax law simply allowed spousal estates to be treated separately in this manner, thus removing the need for all the paperwork associated with forming and maintaining a trust.

You mentioned "maintaining" a trust...what are the maintenance considerations? You were right I was talking about and AB trust and your answer helps clarify it for me. Thx

 

[pb4uski]

My folks have such trusts. Once set up, maintenance is minimal in my experience. My dad passed and mom is his trust's sole beneficiary. Mom, sis and I are co-trustees. I just do a trust tax return and K-1 each year. An hour or so a year once you've done it. Easy.

 

[Meadbh]

While I'm interested in not paying any more taxes than necessary, I'm also not stressing over it. As I told my mother this year when I finished her tax return, since the money she is spending now wasn't taxed when her husband earned it, nor was the growth taxed, she's just paying taxes now that they didn't have to pay back then. She was much happier once she understood that.

Very true. Deferring taxes for decades is a good thing, and it is better to have taxable income than no income.

 

[HighRoller]

You should only convert now if you expect to be in a higher tax bracket later.

For example, if RMD's at age 70.5 are going to push you into a higher tax bracket then you can lower the value of your IRA's by converting some to ROTH now in order to lower the RMD's.

This is my situation and I will probably start conversions this year. That gives me about 8 years to reduce my traditional IRA values before RMD's kick-in. Still crunching numbers to decide how much to convert each year, given current tax rates.