Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Mathjak, I like the idea of the Single Premium Life Insurance. However, please clarify: "otherwise that ira would add more than 100k in income a year to their incomes triggering nasty tax consequences"
Suppose I start with a $1 million Traditional IRA, and over time pay the tax to convert it to a Roth. Once I pass, doesn't the kid have 10 years to cash out the funds Tax Free? Why would it trigger nasty of tax consequences?
My son will inherit my IRA, probably during his highest earning years. If he has to take the money over 10 years, it could add 30,000 or more to his salary EACH YEAR. That will put him in a much higher tax bracket for 10 years. If I spend it now I will be paying tax on my much lower tax bracket.
Mathjak, I like the idea of the Single Premium Life Insurance. However, please clarify: "otherwise that ira would add more than 100k in income a year to their incomes triggering nasty tax consequences"
Suppose I start with a $1 million Traditional IRA, and over time pay the tax to convert it to a Roth. Once I pass, doesn't the kid have 10 years to cash out the funds Tax Free? Why would it trigger nasty of tax consequences?
the conversion would still have you paying tax on that million being converted .,. no free money there at all as all the ira money would be taxed up front eventually .
the single premium life policies are leveraged in the sense that i would only spend a fraction of that 1 million in the ira for the policy and get taxed on it , and now we get 1 million tax free dollars out of it . in effect we took taxable money and converted a lot of it to untaxable money .
so in effect if we spent 600-700k on that policy we pay tax on that and we got 1 million dollars tax free . almost half to a third of that money never was taxed at all
it is for your spouse or heirs ... if i leave my wife a million dollar traditional ira she has no clue what she gets to keep to live on . it is like having a mortgage on it but not knowing what you owe .
so by leaving her a million dollar life policy instead she gets 1 million in tax free money , which is at a time she would be filing single tax wise with those heavy rmd's ..
plus you get that 1 million dollar policy for less than a million dollars so that is where leverage comes in .
I enjoy reading all the estate planning you married folks with kids have to do. And I learn from it. I've picked up lots of good info.
But I'm so glad I don't have those factors to consider.
Quote:
. My plan to do Roth conversions vaporized with the tax law change a couple of years ago.
In my opinion, the only reason to do Roth conversions is for estate planning.
From time to time I still I still think about converting Trad IRA money to Roth. But --
-- I want a tax refund now, and filling up my tax brackets with conversions means no refund. Bummer. Can't have it both ways. So I'll likely go the the known tax refund today. And I can still always convert in the years between retirement and RMD kick in. which is now 72. OR...let taxation in retirement take care of itself, and be what it will be. And today's 24% bracket for me doesn't seem like so much of a deal that I have to grab it now.
-- I have no kids or spouse for whom I feel I HAVE to provide an inheritance. (Siblings, nieces, nephews. But if there's something for them to inherit, fine. And if they pay taxes on it so be it. They get what they get. And it'll be more than nothing. So they'll be glad to get anything.)
That’s the way I see it too. I have the life insurance policy for wife. If she goes first, then I cancel the policy. By converting tIRA to ROTH between 2021 and 2027, when I plan to collect SS, I get to fill the rest of the 12% bracket and some of the 22% bracket, instead of paying in 15% and 25% w/o conversions. That’s worth about $40k to me then, and possibly a ton more to whomever is left and single and paying the increased rate. I say possibly only because if we both live to say 85, much of that will be gone, enjoying life, if I have anything to say about it.
I already have life insurance policy for both my husband and I. But the longer we live the less advantage it will be. But run some tax scenarios on TT, if we don’t convert to Roth, we will be paying twice the tax now when I take SS without RMDs even. The way I see it, tax will be paid from IRA, no way out. I rather pay it slowly every year. Both of my kids have higher tax rate than my husband and I, single with no deductions. So it makes sense to convert now. We don’t plan to use this money until years later.
For me though (actually all of us) the individual tax cuts are set to expire after 2025, the very year I (hope to) retire. So, alack and alas, the earliest I'd start converting would be 2026.
And while I have been learning, studying, following the issues and planning (boning up on SS and Medicare) I am still too far away from retirement to really do much concrete planning -- other than already having certain kinds of accounts in place.
But where to move how much money based on future guesses about taxes, income limits/thresholds for certain programs? Who knows what rules will be instituted after 2025.
Plus I'm just a middle income earner -- right at the threshold of where it might be worth it to make all kinds of money moves....OR....it might not. IF I were Mitt Romney or Warren Buffet -- or heck even a low-to mid six-figure income earner -- the planning might be easier. I'd KNOW I'd be hit my the tax torpedo. I'd KNOW I'm looking at a Medicare surcharge.
But when you're right on the cusp of maybe having enough to just kick you into a higher bracket or over an income limit .... you just can't know until you know.
So, I just do all the research I can.....and in the meantime......live my life.
The math here is that filing married, the 12% tax bracket extends up to $80,250. The standard deduction is $24,800. You need an AGI of $105,050 in tax year 2020 to be outside the 12% bracket. My plan to do Roth conversions vaporized with the tax law change a couple of years ago.
In my opinion, the only reason to do Roth conversions is for estate planning.
That seems so unfair to single filers. I pay 22% on $85,000 and get half that deductible.
Don’t forget there are no more dependent deductions so it is built in to the standard deduction
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
