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Old 04-08-2015, 10:51 AM
 
8,835 posts, read 5,123,147 times
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Quote:
Originally Posted by jane_sm1th73 View Post
Mathjak, thanks for your insight. Realistically, I have little hope of being in 15% bracket before I pull the trigger. Only if I load up on rent/commercial properties RIGHT NOW while I have income to substantiate. In my case, not a wise move - the RE within manageable distance (3 hrs round trip) is insanely overpriced. I don't like the area enough to be tied to it. Don't have enough discretionary time to do da job and manage farther flung properties.

The purpose of the Roth conversion: it is my understanding from reading posts from you and others on this board, Kitces, and googling extensively, that you and heirs can keep those suckas going in perpetuity. Thus, benefit during my lifetime is subordinate to prospect of future tax-free compounding.

Like I said, don't need a lot to feel happy and fulfilled.
No. Inherited Roths have RMDs.

Publication 590-B (2014), Distributions from Individual Retirement Arrangements (IRAs)
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Old 04-08-2015, 01:37 PM
 
71,511 posts, read 71,674,131 times
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Quote:
Originally Posted by jane_sm1th73 View Post
Mathjak, thanks for your insight. Realistically, I have little hope of being in 15% bracket before I pull the trigger. Only if I load up on rent/commercial properties RIGHT NOW while I have income to substantiate. In my case, not a wise move - the RE within manageable distance (3 hrs round trip) is insanely overpriced. I don't like the area enough to be tied to it. Don't have enough discretionary time to do da job and manage farther flung properties.

The purpose of the Roth conversion: it is my understanding from reading posts from you and others on this board, Kitces, and googling extensively, that you and heirs can keep those suckas going in perpetuity. Thus, benefit during my lifetime is subordinate to prospect of future tax-free compounding.

Like I said, don't need a lot to feel happy and fulfilled.
your heirs cannot, just let an inherited roth sit. By Dec. 31 of the year after the year in which the owner died, they must begin taking required minimum distributions (RMD) annually. If they don't make the RMD by that deadline, they will need to have withdrawn all the assets by the end of the fifth year after the year of death.

The RMD you will be subject to is based upon the IRS's single life expectancy table. The value of the account on Dec. 31 of the year death is divided by the beneficiary's life expectancy listed on that table to obtain the first RMD amount.

it isn't taxable but they do have to pull it out.
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Old 04-08-2015, 03:28 PM
 
2,409 posts, read 2,638,599 times
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Quote:
Originally Posted by mathjak107 View Post
your heirs cannot, just let an inherited roth sit. By Dec. 31 of the year after the year in which the owner died, they must begin taking required minimum distributions (RMD) annually. If they don't make the RMD by that deadline, they will need to have withdrawn all the assets by the end of the fifth year after the year of death.

The RMD you will be subject to is based upon the IRS's single life expectancy table. The value of the account on Dec. 31 of the year death is divided by the beneficiary's life expectancy listed on that table to obtain the first RMD amount.

it isn't taxable but they do have to pull it out.
Weird. I wonder what the purpose of an inherited Roth MRD is. There is no tax on it.
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Old 04-08-2015, 04:41 PM
 
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that is correct . but the ability to grow that money and compound it tax free forever for heirs is limited by having rmd's.
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Old 04-08-2015, 04:46 PM
 
Location: South Jersey
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I retired at 62, banked enough in an online savings account that I can live on the withdrawals.. only take a small amount from TIRA, which, along with DW's small SS payments, allows me to get maximum Obamacare subsidy until I get to 65, Medicare age.
Starting at 65, will try to convert $20,000/year to Roth IRA, which, along with pension that begins at age 65, will keep me in the 15% marginal tax bracket. Will file and suspend SS until age 70. Hopefully that will reduce my taxes when I hit 70 1/2, and RMD's begin.
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Old 04-08-2015, 04:47 PM
 
1,734 posts, read 1,948,466 times
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Quote:
Originally Posted by mathjak107 View Post
that is correct . but the ability to grow that money and compound it tax free forever for heirs is limited by having rmd's.
Thanks for insight, shoot - there goes another hopeful idea for legal tax avoidance.

However, as the man sez, heirs CAN pull out the RMDs tax free. Not that I'm in a position to leave a taxable estate, lol!

Thanks to everybody for commenting! The thought sounds attractive even if they can't pass great-great-great-grandma's Roth down indefinitely.
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Old 04-10-2015, 12:33 AM
 
Location: Phoenix, AZ > Raleigh, NC
15,069 posts, read 18,997,066 times
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Ah, but let's complicate things a bit more! Leaving those IRA in a Traditional IRA and setting up designated beneficiaries allows the heirs to take the RMD's out on THEIR life expectancy based on your date of death. IF you are talking a large IRA going to heirs considerably younger than you (1-2 generations), that method will probably be far more beneficial to them than converting to Roth IRA's. (minimizing tax and maximizing growth within the IRA).

Check it out with a good estate planner and have them run some numbers. It's also very dependent on your age - but since you're eligible for Medicare, you must be 65. That's old enough to make my suggestion well worth considering, I believe.

Mathjak, do you agree?
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Old 04-10-2015, 02:37 AM
 
71,511 posts, read 71,674,131 times
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if you structure right and put equities in taxable accounts where they can get zero caoital gains taxes or lower rates and the income stuff taxed at regular rates in the ira's then the taxable accounts pass to the kids tax free with no rmd's.

not just delaying tax but no tax.
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