Nonspouse beneficiaries are subject to Required Minimum Distributions. And as usual, failure to take them timely is subject to a penalty of 50%. A punishing amount!
I assume that your reply to me is in regards to my Roth recommendation above. Yes, Roth's inherited by non-spouses must be taken on an IRS defined distribution schedule, BUT there is no tax for them either. If the recipients are smart (and follow my advice) they will use their applicable taxable income as a basis to allow them re-invest the inheritance in their own Roth's. This strategy can be passed forward through generations using the same strategy. :-)))
Thanks for this reply, too. I had recently read an article about non-spouse inheritors of Roths and dRMDs, so just tossed it in. I remained silent on the central issue of taxability because it occurred to me that I really didn’t know about that aspect. You might prefer to add to your original post, certainly not my prerogative, but just a suggestion.
TomB, I am not sure what you are looking for regarding the "tax-ability" of my recommendation, but here is my strategy based on inheriting funds tax-free from a Roth and having taxable income.
The IRS says:
For 2014 and 2015, your total contributions to all of your traditional and Roth IRAs cannot be more than:
Let's say the kids are the beneficiaries and that they are married and between the two spouses they have at least as much job-related income that is taxed as their Roth contribution. Say that they are younger than 50 and their income is at least 2 * $5,500 = $11,000. Let's say that their Roth inheritance as dictated by the IRS distribution rules for their age is at least $11,000. They can use that Roth distribution to fund their own Roth and that of their spouse to the maximum thus sheltering it for their lifetime and depending on how they instruct their kids, their lifetimes too if they do the same things. If the spouses are over 50 then they can shelter up to $13,000 in Roth's for each spouse based on their inheritance.
These Roth contributions have NO impact on their life style based on their own earnings. With a bit of discipline, it is gravy for them! I hope that this helps explain my thinking. :-))))
A technicality, but I believe the income needs to be "earned income" to put money in a Roth IRA? In other words not passive income like rent, interest, etc.
Anyone out there know what a beneficiary designation of "John Doe, per sirpes" means in context with easing the ability of the heir (beneficiary) John Doe being able to disclaim the inheritance and then the Roth goes to his siblings?
Absolutely, Squiffy. That is why I stipulated that "between the two spouses they have job-related income that is taxed". I have changed my statement to be perfectly clear.
I do not know how the term "per stirpes" can be used to let one disinherit themselves in favor of their children. We use the term in our trust for each child to insure that the grandkids get our child's share should that child die, otherwise the remaining kids might get the dead child's share. Basically it means: "When the heir in the first generation of a branch predeceased the decedent, the share that would have been given to the heir would be distributed among the heir's issue in equal shares." Here is a good example of the concept:
"What this language means is that if you have two children and five grandchildren who survive you, then each of your children will receive a 1/2 share and the grandchildren will receive nothing. If, however, one of your children predeceases you and is the parent of three of the grandchildren, then the surviving child will receive a 1/2 share and each grandchild will receive a 1/6 share (in other words, the deceased child's 1/2 share will be divided equally among the three children who have survived the deceased child: 1/2 divided by 3 = 1/6 each)."
I suggest that you ask a very good estate lawyer that question and discuss it in detail with him/her before you proceed. GOOD LUCK!!! :-)))
Sorry, I did not notice that. Do you know anything about the "per
sirpes" legal terminology as it may pertain to Roth beneficiary designation?
We use the term "per stirpes" on all of our retirement beneficiary statements, including IRA's and Roth's. I suggest that you study and understand the example I provided to get a good feel for this somewhat subtle legal terminology My Latin was quite rusty too. :-)))) I then strongly advise that you spend a few hundred dollars (or it may even be free for a short consultation, especially if it is a trust and this lawyer wrote it) to go over your specific situation with an expert estate lawyer.
Is this a situation that you are putting in place or are you possibly such a beneficiary? Note that if the person whose estate specifies you as "per stirpes" and he/she has died before you, I believe that you are already the beneficiary and your will/trust applies. On the issue of disclaiming the inheritance, I would be VERY careful to not address that without the advice of a very expert estate lawyer. The family lawyer might be as confused as you may be and even lawyers that do trusts can be quite ignorant of IRA/Roth law. We found that to be true. Also, should you be the beneficiary and this is a trust, there may be tight time IRS constraints on you. GOOD LUCK!!! :-)))
I'm with you
I'm still learning - after seventy years
I am listening (carefully)
precisely my thoughts as well
time - is on my side - yest it is
It's that time of year again--National Save for Retirement Week! I'd love to get this conversation going again and hear from the rest of you. What advice would you give to your younger self? What did you do right and what would you have done differently?
Lighten up, Dude! :-))))
It's probably impossible to save enough for health care ... unless the alternative is something you don't mind!
"Good judgment comes from experience. Experience comes from bad judgment." -- Mark Twain
what my father called "the school of hard knocks"
Now I am 70. This is advice to my former self (age 50 and following, next14 years or so):
for 2015 the amount of voluntary retirement savings (deferred income) changes to $18,000 per year per person plus, age 50 and above, another $6,000 which means for you and spouse a total of $48,000 (equally $24,000). In addition, because your spouse has worked at least fifteen years at the same employer, she is allowed for five years another $5,000 (I believe) per year, putting the total for the two of you at $53,000 not counting your Roth IRA (each) - fully fund that as well. Think of what it will be like after more than a decade of doing this each and every year. When you retire, already you will have an _additional_ $24,000 (and she will have additional $29,000) beyond what you are accustomed to be living upon. Believe me, you will find ways to use that "extra" - which is not actual money - just money that "did not exist (disappeared)" because while you work it is being taken automatically out of paychecks (yours and paycheck / deposit directly - of spouse).
I would have paid more to reduce the remaining mortgage on my home. Of course real estate in the northeast is higher as are other costs so it is not as though I neglected this. But the choice of housing, a Victorian, required more maintenance and this more money. Drops in the housing market over the years hit very hard in neighborhoods with greater social challenges. But I do not regret the decision to purchase, I would do it again. But I don't like facing down retirement with a mortgage.
I think I'd give serious consideration to some of the things I did for fun. My wife and I actually saved and invested pretty well but when I reflect back on the good times, well, the expensive ones weren't necessarily the most memorable. Spending a week reading a book on the beach in front of a pricey beach resort doesn't bring back near the good memories as paddling white water rivers of WV in a much less expensive rubber raft. And while I wouldn't want to give up the experience of having Silver Tickets to the Pistons/Bulls game, it isn't nearly as exciting the 2nd time as it was the first. Cable Beach in the Bahamas is far more crowded than any beach on Florida's Emerald Coast but it costs a whole lot more to get there and the water isn't a bit more clear. And the list goes on. Looking back, I could have saved a lot more money for retirement and had at least as much fun along the way.
Upon becoming vested in my job, I would have immediately began putting money in one of our retirement investment accounts. However, my job was putting money into retirement for me so I thought I was set. I wasn't until I hit my early 50s that I realized I was going to need more and started investing myself. Unfortunately, retirement is such a foreign thought for most young people; it's just like youth itself; they think it lasts forever. It doesn't!
Listen to your Mother! Back in 1965 my mother advised me to save $10.00 every payday (every two weeks) and increase that amount proportionally as your income increases. Gosh I would be rolling in the $$$ today if I had followed her advice.
I am one of those that have saved 10-20% since my early 20's. Never bought a car that I could not pay cash for. (I drove a lot of $1,000.00 cars over the years. Only one new car.) And for the last 30 years have only had a mortgage. We are on the eve of getting ready to retire and will be able to hopefully retire on a comfortable lifestyle. Not rich, but comfortable.
My advice for our children has been to save at least 20% of everything that you make and do not plan on any defined benefit retirement checks. So far all of the kids have worked through college and paid their way through school and with our help have graduated without any debt. No one signed any loans or other debt instruments. They get it because we have taught smart money management since they were young.. Live at a lifestyle 10-20% BELOW your income and will it will be OK.
Not trying to brag, but for years my wife and I were criticized for your common sense/ fugal ways which are now starting to pay off with a secure planned retirement.
One thought might be to look at yourself as an individual and take advantages of your personal strengths rather than follow the crowd. My situation is different than most in that I began my working career building homes. After I left that business I still had the tools and skills so I built our personal home with the plan to live in it for a few years, sell and build again. The first one was mortgaged to the extent of my credit but after one renovation and two new homes, the 3rd home was mortgage free. I was still only 50 years old and had plenty of time left to pad the retirement savings once we were debt free.
Not everybody can, or has the interest to build houses but most people have some sort of skill, knowledge or ability beyond their 9-5 job that can generate money. If you can live off your base income and stash away any profits from a side job, hobby or other interest, you'll find that it can add up to a substantial retirement savings account. And it can be something you enjoy.
Have known the "Rule of 72"! I teach and ask young people to the teach others the rule.
Buy and hold does not work anymore. You have to manage your own retirement funds and allocate to stocks and bonds funds depending on up- and down-market periods. Life cycle funds are extremely risky. During stock market up-market periods you have to allocate more money to stock funds and less to bond funds. Avoid all managed stock accounts.
I would say buy and hold is not good for individual stocks, but not so much for broad index funds. However, you should pick the percentage of your retirement you want in stocks and rebalance (once a year or once every 6 months maybe) so you have that percentage. However, you will find that you actually end up BUYing more stocks in down periods and SELLing more in up periods for the stock market. This seemingly contradictory strategy forces you to buy low and sell high. Buying more stocks when the stock market is soaring is just the opposite of that but it is what a lot of people do.
Don't waste your time and money going to graduate school full time to get a doctorate--better to earn and start saving early, in your 20s and 30s, rather than wait until your 40s.
1. Invest in 401k with comfortable limit or increase investment more in 401k when you have excess money in bank and looking for investing somewhere.
2. Don't invest lump sum, invest it with a strict routine.
Invest 100 percent of all savings in no load index funds.The market always comes back.
Purchase all the land on lakefronts as possible.
Investing along those lines has actually done fairly well for me but you have to keep a couple basic principles of investing in mind. Buy low and sell high, and be prepared to weather the storms.
Don't get the "V" disease to entertain family members. The "V'" disease includes, but is not limited to SUVs, ATVs, RVs, boats, wave runners, snow mobiles, sports cars, horses, riding lawn mowers, chain saws, etc. If you want a to have fun rent one for a day or week, or if you must have one buy a used one from a person you know that took care of it and learn how to repair them.They are really just black holes and the maintenance will drain you and your kids will get tired of them after 3 years and want to move on to the next toy and there resale value is poor.
Don't go over board for saving for retirement, rather take a vacation every 6 months. You may build up a $2 million nest egg and never have any fun, but die of cancer or heart disease at 60 and leave the money to some spoiled niece or nephew.
Contrary to what others have mentioned in this blog, getting a PhD was the best thing I ever did. Yes I put off working for a number of years and built up some dept along the way, However, my salary is 3Xs my subordinates and after 38 years, I have saved 10 times the money that they have and have traveled all over the world for free. Each of my 2 children have also earned 3 degrees and subsequent considerable dept, but studies have shown that they will live a more satisfied longer life then those who achieved less in school. They can take away your job, money, dignity and other things, but they can never take away your education. Anyway what does TIAA stand for?
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