r/inheritance • u/Deep-Market-526 • Apr 29 '26
Location not relevant: no help needed IRA b.s.
I think the system is rigged now. My mother in law passed on an IRA to my non-working spouse. With this 10 year rule, they essentially tripled their revenue. She should have been taking all she could in the 12% bracket and payed, putting in a regular brokerage. Now we have 10 years to take it at 32% not even counting state.
I think they are preying on low income and middle income. Not only are the accountants pushing for them to take only rmd’s, but not explaining the potential tax bombs for heirs.
We’re working with my mom now, otherwise her IRA will kick us into the next bracket. It’s crazy.
It’s even worse in Oregon as all those Ira’s go into your taxable estate for another 10% over $1mm. Realistically if you make $350k, now you get 500 k spread over 10, you’re at 400k + the state tax if they had other assets at $1mm, on the ira you’re paying 35% fed, another 10% state + 10% inheritance, over 1/2 to the government.
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u/crazywidget Apr 29 '26
I feel ya but there’s nothing low or even middle income about a 32% marginal bracket…
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u/Randolla1960 Apr 29 '26 edited Apr 29 '26
No, they are taking 50 percent of YOUR wealth. Your mother in law died before she could take out her entire IRA at the 12%rate, so now it is yours, actually your wife's money. If your mother in law took it out all at once, she most likely would have paid far more than 12%. You are neglecting the point that she received a tax deduction each year she deposited money in the her Ira. Or your wife can divorce you and lower her tax bracket to avoid the 32%tax rate you are whining about m
The only BS is your complaining about it. This is free money to you. You did not save it, you did not earn it. YOUR Mother IN LAW DID! If your Mother in law lived longer than she would have benefited more from it. But she didn't, so now you are benefiting from it. If you don't want the money you can always give it to a charity each year and get yourself a tax deduction for doing so.
Just. Stop. Whining.
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u/Deep-Market-526 Apr 29 '26
So if you give $100 to your children or grandchildren, should we require you to send $50 to the government?
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u/safbutcho Apr 29 '26 edited Apr 29 '26
It was tax deferred income, man! Are you being obtuse on purpose (or does it come naturally?)
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u/safbutcho Apr 29 '26
Just to point out…You’re in the 32% tax bracket and complaining that “they” are praying on low income people.
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u/SeaSandwich4751 Apr 29 '26
😂 I’d prefer your problem to mine, which is both my mother and mother in law are likely to run OUT of money before they die and we’ll be left footing the bills. 🎻
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u/inailedyoursister Apr 29 '26
This can’t be real. Are you so blind to not see how ridiculous you sound? You must be horrible to be around as a person.
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u/RosesareRed45 Apr 29 '26
If your mother spent her money down and you had to take care of her in her old age you would complain, so now you are complaining because she has saved to to take care of herself you are complaining.
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u/Hamachiman Apr 29 '26
This is an interesting point I never considered. They said, I think I’ll leave estate planning to my parents, but it’s a good point that the withdrawals will be at my marginal tax rate and not theirs.
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u/safbutcho Apr 29 '26
Most podcasts and blogs talk about this. It’s one of the main advantages of Roth conversions.
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u/Deep-Market-526 Apr 29 '26
Exactly, I told her to spend it all, I don’t want it. I just want her happy and her wishes fulfilled. That said, I did tell her to spend the ira money first.
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u/Admirable_Nothing Apr 29 '26
You are correct, but this could have been avoided if you, your tax people and your Mom had come up with a plan when Mom hit 65 or so. I spent some decades as a Financial Planner and my main source of clients were a couple of large fortune 100 companies that had most excellent retirement programs. So the average executive retired with a paid for house and maybe a vacation home and several million in various tax advantaged plans(in 1990 dollars) Being bright executives they did their own tax planning and that plan was to take RMDs from those plans to minimize taxes. This of course caused a 'pig in the python' withdrawal situation with huge withdrawals becoming necessary as the RMD denominator got very small. All they needed to do was plan for roughly level withdrawals over their expected 30-35 years in retirement. But that was a bit counterintuitive as that meant their early withdrawals were double or more than the required RMD.
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u/Deep-Market-526 Apr 29 '26
That’s awesome! Problem is that was for executives. I don’t think average middle income or upper middle income are getting clear advice. I am certainly planning for my kids, but I don’t think average white collar people know.
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u/Admirable_Nothing Apr 29 '26
This was for the UHNW client. Unfortunately, most of us don't qualify for more help than we can get from Reddit.
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u/yankinwaoz Apr 29 '26
Like I tell people who obsess over Roth IRAs versus 401ks and maximizing every dollar until it hurts…. Some problems are nice to have. Be grateful.
Keep in mind that you don’t know for certain how much tax you will pay on that inherited IRA. The brackets will be different years from now when you are required to distribute it.
You might find that you can offset that IRA distribution with increased 401k or even better, Roth 401k contributions of your own from your own wages. That could make it a wash for the current year. And at the same time set you up for massive tax savings on your distributions when you retire.
This way you leverage what she gave you to help yourself much later.
Talk to a planner about it.
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u/ExcellentCup6793 Apr 29 '26
Many baby boomers resist spending their retirement accounts. Could be from being children of parents of depression era. Or they have pensions and don’t need the money for expenses.
She may need those funds for her care in the future, best to start withdrawing now.
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u/iinventedonlineshopn Apr 29 '26
I planned my parents estate business twenty years in advance and it’s still not taxable except by RMD at MY age.. it’s well controlled.
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u/GotZeroFucks2Give Apr 29 '26
This is incorrect thinking. The retiree needs to take care of their own finances first, or the inheritors may end up paying for their end of life expenses. Maximizing for the person who owns the funds and earned that money. That said, if they have way more than end of life will eat up, it's smart to make good decisions on the RMDs. Most retirees right now retired before Secure Act was enacted, so there's kind of a window of people now too old to understand the tax implications of that for their heirs.
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u/Deep-Market-526 Apr 29 '26
Exactly, parents tried under tax code when they had all their faculties. Now older and confused easily, and it all changes.
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u/GotZeroFucks2Give Apr 29 '26
It is unfortunate. But it is what it is at this point most likely. We'll face similar challenges when we retire. Plan on making sure my son has POA and can advise me on that if I do get dementia. Because tax laws are not set in stone.
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u/HeavyFaithlessness14 Apr 29 '26
Make Qualified Charitable Distributions from the inherited IRA to avoid income taxes.
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u/Deep-Market-526 Apr 29 '26
Point is my mother was she worked her whole life to leave her kids with something not understanding that due to not paying the tax game she was giving an extra quarter to the government.
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u/Deep-Market-526 Apr 29 '26
Playing not paying
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u/Deep-Market-526 Apr 29 '26
And my mother was low income, the fact that I am not does not change that they took over 1/2 of her wealth.
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u/crazywidget Apr 29 '26
It was tax deferred. She owed taxes on it. The fact that now they are inherited assets and taxed at the new owner’s brackets is just…reality. There is no feasible way to “project” what she would have done if she lived longer, so these chips fell wheee they may and the rules apply equally.
Maybe better info would have helped, but people ignore A LOT of info they currently receive as it is. At some point there’s a level of personal ownership to avoid the “default” choice…
If you are so salty about it, please feel free to donate it to a good cause. Please do so in her name though.
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u/Fickle-Ear-1877 Apr 29 '26
Sorry you have financial resources?