Roth conversions and life expectancy

[cb2008]

We both have large Pretax IRAs. Our tax planning includes joint tax planning as well as individual when one spouse passes. DH has pension, took spousal SS until 70.5 years. If he goes first I will get half his pension and his higher Social Security. If I go first he will have a large tax burden starting right away. So all of our Roth conversions are from his account We are doing large Roth conversions till the tax rate changes in 2026 when we will revert back to the 28% tax rate and IRMAA tier 2. To lessen the tax burden by holding onto money we won’t need We are considering disinheriting the others traditional IRAs at time of death to lessen the tax burden for the survivor. This would also spread the taxes for our heirs with the new 10 year rule on inherited IRAs.

I am interested in your opinion on this strategy.

 

[DawgMan]

We convinced all three kids to open FIDO brokerage accounts with the $100 opening bonus they offered last fall. When we want to transfer appreciated shares we just call FIDO and advise them of the # of shares of which stock positions and the kids account numbers. The cost basis shows up immediately on their accounts. After seeing those crazy year end capital gains last year, this will be the only way we “gift” money to the kids. We also opened a Fidelity Charitable Giving account for the same reason.

Ok, so the advantage here of gifting appreciated shares to kids is only if their capital gains rate is lower than years in any given year, correct? I am assuming there is no way to gift to kids out of your tax deferred accounts in an effort to avoid income taxes?

 

[cb2008]

Gifting stocks and funds to the kids

Ok, so the advantage here of gifting appreciated shares to kids is only if their capital gains rate is lower than years in any given year, correct? I am assuming there is no way to gift to kids out of your tax deferred accounts in an effort to avoid income taxes?

There is no way to gift to kids out of tax deferred accounts without paying the tax first or dying then they pay the tax. The advantage to us for gifting appreciated stocks is to avoid taxes on our end, the kids will pay the taxes on this gift based on their own tax rate when they sell. We also try to reduce our taxes by transferring to them the funds that tend to have large year end capital gains. These accounts will be educational for them while we are still around in preparation for managing their inheritance when we pass.

 

[pb4uski]

We both have large Pretax IRAs. Our tax planning includes joint tax planning as well as individual when one spouse passes. DH has pension, took spousal SS until 70.5 years. If he goes first I will get half his pension and his higher Social Security. If I go first he will have a large tax burden starting right away. So all of our Roth conversions are from his account We are doing large Roth conversions till the tax rate changes in 2026 when we will revert back to the 28% tax rate and IRMAA tier 2. To lessen the tax burden by holding onto money we won’t need We are considering disinheriting the others traditional IRAs at time of death to lessen the tax burden for the survivor. This would also spread the taxes for our heirs with the new 10 year rule on inherited IRAs.

I am interested in your opinion on this strategy.

That sound sensible to me. What tax brackets are your heirs in?

Have you considered using your tax-deferred money for QCDs? Perhaps fund a scholarship in your name at your favorite educational institution? Or some similar philanthropic measure?

 

[TheWizard]

Ok, so the advantage here of gifting appreciated shares to kids is only if their capital gains rate is lower than years in any given year, correct? I am assuming there is no way to gift to kids out of your tax deferred accounts in an effort to avoid income taxes?

Well, for a married couple with decently high income and assets, the first to pass can will a portion or all of tax-deferred investments to offspring to avoid burdening the survivor with a higher RMD and resulting higher taxes.

But the wisdom of this depends a lot on the financial situation of the offspring as well...

 

[pb4uski]

Ok, so the advantage here of gifting appreciated shares to kids is only if their capital gains rate is lower than years in any given year, correct? I am assuming there is no way to gift to kids out of your tax deferred accounts in an effort to avoid income taxes?

There is one way that I can think of to effectively gift to kids out of your tax deferred accounts and avoid income taxes, but you would not like it.