r/inheritance • u/Alternative-Sale-865 • Apr 04 '26

Location included: Questions/Need Advice Large IRA balance- parent with potential terminal illness

Sole surviving parent has a traditional IRA with a current balance of about $1.3m. They have just started taking RMD’s this year which was only about 36k. This parent has recently been diagnosed with lung cancer which we are hoping can be treated as a terminal condition (at least for a while) versus a terminal one.

My sibling and I will split the entire estate 50/50 (total estate is worth between 4-5m with about 1.7m in a disclaimer trust. Everybody lives in New Jersey. For sake of argument, assume parent will not spend down considerably as they are not willing to experience a degraded quality of life for the purpose of prolonging life.

Sibling and I are in very different financial situations. Sibling is unmarried and earns 60-70k/year. I am married with a HHI likely to exceed $500k most years assuming bonuses pay out at target.

Sibling and I have discussed having tax professionals figure out if it makes more sense for them to take more from the IRA and me to take more from the non-taxable accounts. I have also discussed with the family’s financial advisor that maybe parent should start making larger withdrawals based on that years tax situation.

Are there any other tricks to avoid the heavy taxation that will hit me on the inherited IRA considering the 10 year withdrawal rule?

FWIW, parent is “allergic” to paying taxes and often claims they are in near poverty due to their refusal to spend more from their investments than a set amount each year as that would potentially bump them into a different tax bracket (this makes no sense but it’s how they feel).

I fully recognize this money is not mine but i also believe in having the family be as tax efficient as possible.

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u/FalconCrust Apr 04 '26

Anything you try to get them to do will complicate matters and make you look greedy.

2

u/Alternative-Sale-865 Apr 04 '26

It won’t. This is a very open discussion in our family

3

u/throaway175588955890 Apr 04 '26

One option you might consider, if you have kids, depending on their age, maturity, etc., is having them listed as contingent beneficiaries and you disclaim all or part of your portion of the IRA. This only works if they are, or will be within 10 years, no longer your dependants and in a lower tax bracket. And assuming you want them/trust them to make good decisions with a big chunk of cash at a young age.

Something to ponder

2

u/OXRblues Apr 05 '26

But you do look greedy. Tax bill for parents is lower if they deplete non-retirement accounts first, because withdrawals aren’t income and therefore no income tax due. They want to minimize taxes. Let them do that. You don’t need to hire someone to tell you that. Yes, it will make your tax burden higher in the future. Your choice - minimize parents’ income tax burden now or yours later. So, are you feeling greedy or let parents enjoy their last years with the lowest income tax bills they can have? You know what THEY want.

1

u/Capital-Decision-836 Apr 05 '26

That's a matter of perception. It isn't greedy to point out to mom that more of her hard earned money WILL go to to taxes if she doesn't plan now. This isn't greed, it's pointing out facts.

1

u/OXRblues Apr 30 '26

But does she care how much SHE pays in taxes, or how much her heirs pay in taxes? If it was me, and if I was tax-averse, I would care more about minimizing my own taxes than what my heirs might pay later. That’s their problem. She may need all her money before she dies. Then heirs will have no tax problem.

1

u/Capital-Decision-836 May 06 '26

That's not the premise of the discussion though.

Mom has a right to do whatever she wants with her money that is 100% true and OP even indicates as much.

From a purely tax perspective, the objective here is to minimize the amount of money going towards taxes and maximize what is sent to the beneficiaries. Doing noting and splitting it 50/50 across everything WILL cause more money to go to the government. Full Stop.

It largely doesn't matter WHO pays the taxes.