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0:00 How To Minimize Taxes on Traditional IRAs
0:20 Each Family Is Unique
0:48 It Is OK To Reduce Your Taxes Legally
1:21 How Much Income Tax on Traditional IRA
1:40 Why People Have Large IRAs
2:14 The Likely IRA Scenario
5:24 The Qualified Disclaimer Scenario
10:02 Summary of the Two IRA Strategies
12:31 You Have Three Options
12:47 Name Spouse as Primary and Children as Contingent Beneficiaries
14:31 Designate Children as Primary Beneficiaries
15:06 Designate Conduit Trusts as Beneficiaries
15:38 Why Few Will Take Advantage of This
17:06 What Will Happen If You Avoid This Video
17:44 What To Tell Your Family About Your IRA
18:30 Share This Video With Other IRA Owners
This video explains what you may not realize about IRA beneficiary designations and Inherited IRAs that could cause your family to send significantly more money to the IRS than they really need.
So what I’ve learned from 30 years of estate planning is that every family is unique and each family, each couple, and each individual needs to make their own decisions that are in their best interest and in the best interests of their loved ones. And hopefully this video will enable you to make better-informed decisions so that you can keep and protect more of what you have for yourself and your family, while sending less to the almighty federal government.
After all, our own United States Supreme Court stated in the 1935 case of Gregory v. Helvering, stated that the right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted. And to quote Judge Learned Hand, we may “arrange our affairs so that our taxes shall be as low as possible; we are not bound to choose that pattern which best pays the treasury. We do not even have a patriotic duty to raise our taxes.”
So this video has to do with how much income tax families will pay on an IRA owner’s traditional IRA. We are not talking about the nontaxable Roth IRAs. We are discussing those not-yet-taxed traditional IRAs. Many people have large IRAs because they accumulate significant amounts in their company 401(k), and then retire and roll their 401(k) account balance over into a traditional IRA. In fact there are many people out there who, while they were working, they were frugal, they maxed out their contributions to their 401(k), some or all of those contributions were matched by the employer, and they retired with a healthy six figure IRA, seven figure IRA (which means $1 million or more), and in some cases eight figure IRA.
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Paul Rabalais
Estate Planning Attorney…(read more)
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Taxes can be a major financial burden for families, especially when it comes to retirement savings accounts such as individual retirement accounts (IRAs). Fortunately, there are methods that families can use to minimize the taxes they pay on their IRAs.
The first step to minimizing taxes on IRAs is to understand the different types of IRAs and their tax implications. Traditional IRAs are tax-deferred accounts, meaning that taxes are not paid until the funds are withdrawn. Roth IRAs, on the other hand, are funded with after-tax dollars and the earnings are tax-free when withdrawn.
Once families understand the different types of IRAs, they can then decide which type is best for their situation. Generally, the Roth IRA is the better choice for those who expect to be in a higher tax bracket when they retire.
Families can also take advantage of tax credits and deductions to reduce the taxes they pay. For example, the Retirement Savings Contribution Credit allows families to claim a tax credit of up to $2,000 for contributions to an IRA. Families can also deduct up to $5,500 in contributions to an IRA from their taxable income.
Finally, families should consider converting some of their traditional IRA funds to a Roth IRA. This can be done by paying taxes on the amount converted. While this may seem counterintuitive, it can be beneficial in the long run if the tax rate is lower now than it will be in retirement.
By understanding the different types of IRAs and taking advantage of available tax credits and deductions, families can minimize the taxes they pay on their IRAs. This can help them save more for retirement and reduce their financial burden in the future.
EXCELLENT video.
Why the large number,?
When Christine disclaimed the $2m inheritance, and if Christine also filed IRS Form 706, when Christine dies, would the total estate benefit from a reduction of $2m and still have Bob’s full estate exemption added to hers when calculating estate taxes then?
Very informative, thanks for the information
thank u thank.u
As interesting as that was, all I could think about was what would be the math had Christine done a roth conversion at the time of transfer and then had 15 years of growth on that before her death. How would that conversion plus 15 years of growth as a tax free roth compared to your recommended scenario.
I have directed my 401K to the Educational (non )Profit of my college fraternity. an attorney has told me that as a non profit they will not pay any tax on it. True?
Generational wealth planning is going to be the planning model of the future I believe. People will need the wealth of a family unit to survive – going alone in the future will be more and more difficult based on our current trajectory.
Any opportunity for wife to use distributions of husbands spousal IRA to fund an ILIT using a life contract with chronic care benefits to further protect from high cost of long term care and pass the tax scrubbed dollars though tax free life insurance proceeds and simultaneously protect from potential estate taxes if she should exceed the threshold or if future tax laws
Change or revert to old estate tax levels? So, diffuse the IRA tax time bomb, create all future tax free dollars, protect from long term care costs and avoid estate taxes if estate taxes should crawl back down.
It was amazing. I like this type of content thank you
Thank for sharing your brains with us!
Does this apply to inherited 401ks as well?
The IRS is now requiring annual RMD's for inherited IRA's that fall under the 10 year rule. No option to wait until year 10. ROTH IRA's have no RMD but must be drained by year 10. The spouse is exempt from the10 year requirement. Beneficiaries who inherited an IRA prior to 2020 are grandfathered and can use stretch rules.
don't forget the wife has to take MRDs starting at age 72 1/2!!!
Anyone who has an IRA that’s large enough to incur hefty taxes needs this information.
Nothing like the government saying "Fuck your kids".
Many thanks for this wonderful video! Extremely informative!
I'm 81 and this is scarry as Hell. I love my new wife and also my son and daughter.
What happens if the market drops a lot after Bob dies and before Christine dies. This assumes our IRAs will be worth more 10-15 years from now. Is good advice otherwise, though. Definitely take the inheritance over ten years.
Hi Paul, a small question in two parts: 1) Assuming the inheriting spouse makes the usual mistake and passes on the entire accumulated 6-million-dollar IRA to her children when she dies, would it still reduce their taxes if they took 10 annual payments from that point on? And (2) What if the entire IRA is only worth 1 million when she dies, and there are three children? In that case would it be better for them to let it grow for as long as possible?
My plan it’s to spend all my money. Problem solved.
thanks for all your videos; i wish you practice in my state; i would be the first one when you open the door. To me, you are honest and someone i would feel comfortable entrusting with my estate planning
I just watched "scenario 1" from this video happen to my GF's father's estate! We had the help of 2 CPA's, an attorney versed in estate planning and (to a very limited extent) a fiduciary financial planner…NOBODY said boo about the smarter "scenario 2" referred to in this video. What a shame!
Hello! I own a condo in Florida needed to come to Philadelphia to care for my parents I would like to protect my assets can you help me?
What if you bypass your kids and leave your IRA to your grandkids? I herd that the distributions would be required over their lifetime.
Never thought of doing this.
Thank you sir. This video is extremely relevant to our family. I had to watch it twice to “get it”, but what valuable advice. Literally – valuable. Thank you for the service you are providing to those of us untrained in these matters! You rock!
To expand on Needs More Toys' comment…If each child withdrew from the IRA 40K @ 24% tax, at the end of tens yrs they would have netted $30,400×10= $304,000. If they kept the 400K in the IRA for ten yrs at a compounded 5% (quite possible in a SDIRA), at the end of the ten yrs they would net $393,541 after a 39.6% tax on $651,558.
Sir, is it true that you can actually take an additional distribution from the inherited IRA during the year the father dies, and then start the 10 year distribution rule?
Christine should buy a vacation home between where all 4 children live, and help pay airfare to see her kids multiple times a year. It’s crazy to put it all in accounts. Enjoy that money, enjoy your family, and have a vacation home that is gaining value. It’s not all about Money!
Are the monthly distributions taxed 22% each month!!!?????
Great information but cant relate because I dont have a million dollar IRA. Can you provide information regarding federal taxes on much smaller IRA? Does your advice hold true with much lower amounts?
I really enjoy all your very informative videos, you are absolutely making all the confusing estate planning events a whole lot more understandable. There’s so much to learn, I am amazed at how you are able to to keep it all organized and explain it in a simple fashion to all of us that are not as gifted as you are.
OUTSTANDING WORK.. thank you.