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Any assets besides the IRA's in excess of $100,000 needs to be in a living trust, and will be tax free to heirs up to 5 million per heir. To do otherwise is foolish. The IRA's are treated by the heirs no different than by the parent.
Yes, the death tax is BS and a political tool.
I think the take away is that you should spend down your IRA, 401k etc as opposed to other assets if you want to maximize what you leave behind.
However you might want to pay attention to your tax bracket and maybe limit your withdraw so you do not move into the next highest tax bracket.
Another benefit to spending down the IRA etc. is that the money you use to pay the income taxes is not in your estate and subject to the estate tax.
Yes, I manage my 90YO mother's IRA and we withdraw annually an amount low enough not to change her tax status. It is not a large amount but she is at the stage in life that she really does not want to see change or discuss the issue.
In my own case I may have to revisit the plan which I thought was that my heirs would each wind up with a small IRA from my own IRA.
The case considered by Slott is complete nonsense. Due to annual contribution limitations nobody can accumulate ten million dollars in an IRA, which is the minimum level that would trigger federal estate tax (portability of the 5+ million exemption, adjusted annually for inflation). It is inconceivable that anyone would die with a ten-million-dollar IRA and no other assets. Why is he hawking this kind of baloney?
If that was what you got out of the video then you missed the entire point.
10 million was only used as an extreme example. The fact is on a more normal level ,state level estate taxes and inheritance taxes are very do -able . Many states have very low limits including my own.
My own ira is on track to be hit with ny estate taxes.
You have estate income taxes as well to deal with. His point is spot on about paying the taxes from the ira.
Instead of being able to inherit an ira and strectch it out decades even earning more in growth then the mandatory withdrawals the ira will be gone from the taxes if plans are not made to provide outside funds.
Life insurance manipulations can be one key way of getting sources of money.
Life insurance even at older ages is still leveraged generally paying more then it cost.
There are other ways as well of working around it.
It is just plain a waste of time to focus on the dollar amount he used. He only picked an extreme example to go over the 5 million level. In fact he said it at the beginning.
The amount does not matter the results can be just as bad with any amount when there are no provisions for any of the taxes and funeral expenses except from the ira.
Last edited by mathjak107; 01-29-2013 at 07:02 PM..
He had to use an extreme (and completely unrealistic) example because the numbers don't work out the way he wanted for any example drawn from real life. The problem that he thinks that he has identified, but is evidently unable to articulate, is that the estate tax rate plus the marginal income tax rate in his unrealistic example approach 100%. This never happens in real life, because the ira will not be large enough to trigger federal estate tax in the absence of other assets. State estate taxes, absent federal estate tax, are not high enough to approach 100% when added to marginal income tax rates. The Slott argument is pure baloney with today's federal estate tax exemptions.
State estate taxes and income taxes can suck enough out to make you wrong.
3 states have thresholds well under 1 million,6 states including my own are only 1 million.
Throw in estate income tax and funeral expenses and if you want to lose that much go ahead.
A 2 million dollar estate in ny is 100k in tax. Take 100k from the ira and you owe federal tax and more state tax on the 100k. Pay that from the ira and you owe more federal and state tax.
Someone can inherit a co-op apartment in nyc and have a million in an ira and not have enough liquid cash to pay the state estate taxes and income taxes in 9 months and have to pull from the ira.
Your trying to poke holes in something that happens every day to people. Don't believe it? Then don't pay attention.
Those who want to keep it in the back of their minds can do so.
You are also missing the fact a 10 million dollar estate does not mean 10 million in an ira. It can be 8 million in non liquid real estate and 2 million in iras for the bulk of it.
Some states have inheritance taxes where each person has to pay their own taxes . You get a 100k ira as your share you need tax money outside the ira or you have to liquidate the ira owing even more tax.
There are so many different scenerios you can not even think of them all
Last edited by mathjak107; 01-29-2013 at 07:29 PM..
The case considered by Slott is complete nonsense. Due to annual contribution limitations nobody can accumulate ten million dollars in an IRA, which is the minimum level that would trigger federal estate tax (portability of the 5+ million exemption, adjusted annually for inflation). It is inconceivable that anyone would die with a ten-million-dollar IRA and no other assets. Why is he hawking this kind of baloney?
I agree with you about the likelihood of someone having a ten-million dollar IRA and no other assets. But I had to point out that Mitt Romney has $102+ million in his IRA. How quickly we forget...
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