Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 01:08 – Should We Do Roth Conversions to Our Eventual Tax Bracket? (Alex, MA)
• 07:47 – YMYW Tough Love Made Me Get Serious. When Can I Retire? Should I Do Roth Conversions? (Steve, San Diego, CA)
• 14:06 – Download the Complete Roth Papers Package for free
• 14:54 – Can Grandson Withdraw 529 Funds From Roth After 5 Years? (Barbara, NJ)
• 18:33 – Can We Avoid Capital Gains Tax With This Appreciated Stock Gifting Strategy? (P Ware)
• 20:52 – Should I Create an LLC for Rental Properties? (Mike, voice)
• 22:56 – Qualified Charitable Distributions Don’t Make Sense to Me (GetSmart Paul, YouTube)
• 24:52 – Watch the Retirement Pop Quiz on YMYW TV, Download the Retirement Readiness Guide for free
• 25:41 – Do My Kids Inherit My Savings Account Without Tax Penalty? What’s a Safe, High-Return Investment for Them? (Sherri, CA)
• 27:13 – Can an IRA Fund a Charitable Remainder Unitrust? (Houry, NY)
• 31:38 – Outro: Next Week on the YMYW Podcast

More free financial resources:

LISTEN to Steve in San Diego’s 2019 question

Al: “Maybe you gotta live in a trailer somewhere.” Joe: “that side hustle, you better be able to do that in a wheelchair.”

LISTEN to the Best of the YMYW Podcast 2021,  2022,  2023

Guides | Blogs | Educational Videos | YMYW Newsletter | Subscribe on YouTube

Watch today’s podcast episode on YouTube

Transcription

Intro: This Week on the YMYW Podcast

Andi: Does it make sense for Alex and his wife in Massachusetts do Roth conversions now to the top of their eventual tax bracket? Steve in San Diego got serious about saving for retirement after Joe and Big Al gave him some tough love 5 years ago. Is he good to retire now, and should he convert to Roth? That’s today on Your Money, Your Wealth® podcast number 510. Plus, can Barbara in New Jersey’s grandson move excess 529 funds to a Roth and withdraw the money after 5 years? PWare has a cunning plan to gift appreciated stock to avoid capital gains tax, but will it work? Should Mike create a limited liability company for his rental properties? And finally, qualified charitable donations don’t make sense to GetSmart Paul. Sherri in California wonders if her kids can inherit her savings account without any tax penalty, and whether there’s a safe high yielding investment she should put it in. And Houry in New York wonders if her IRA can fund a charitable remainder unitrust, or CRUT. I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

Should We Do Roth Conversions to Our Eventual Tax Bracket? (Alex, MA)

Joe: Alex from Massachusetts, “Joe and Al, YMYW team. Call me Alex. I thoroughly enjoy the show. A lighthearted mockery. Lighthearted, lighthearted mockery-“

Al: Mockery. Is that what we do?

Joe: Yes. “While being extremely thankful for the insane amount of useful information you share. Thanks for all you do.” All right. Well, thank you, Alex. Well, “Long time listener, and given that my attention span approaches that of a goldfish, I frequently review the, I frequent, a frequent reviewer of past episodes.  Probably due to a consistent sampling of scotch and bourbon, not together.” Alright.  “My wife prefers her amigo Tito and soda, and we both enjoy a good Cab with our dinner. We both drive Lexus vehicles, and I’m a GS 350 sedan and her tank GX 460 SUV. We keep our vehicles for the long term and consistently get well over 350,000 miles on each of them. No pets due to our demanding work travel schedules. Looking for a little spitball on the value of Roth conversions into the 24% tax bracket given that our eventual tax bracket will likely be 24% based on today’s tax conditions once RMDs start at 75.” So the question is, if he converts into 24% and he’s going to stay in the 245, what’s the benefit?’

Al: Yeah, that’s a good question.

Joe: Alright.  Okay, here’s the specifics. ‘I’m 59, my wife’s 57. We have a combined income of $271,000, approximately $200,000 after deductions. I’m a high earner and plan to retire completely at age 62. My wife will work past 65 to carry the health insurance until we are eligible for Medicare. We will start Social Security at 67, and I will start at 70. At that point, my wife will transition to spousal benefits and the PIE increasing from $27,000 in mine at 54. Assets, we have $2,500,000 in our TSP. She has $400,000 in her 401(k). We have a Roth IRA $600,000 each.”  So that’s $1,200,000 in Roths.

Al: Right.

Joe: Very good. Alright. “Brokerage accounts totaling $700,000, $150,000 cash reserves. We continue to max out all of our retirement contributions, including catchups and backdoor Roths. And make monthly contributions to brokerage accounts. I will continue my Roth contributions until my wife retires. No debt, home and cars are paid off, credit cards are paid off monthly. We estimate a $200,000-a-year income requirement to maintain our lifestyles. I have two pensions that will cover $140,000 and plan to cover $60,000 gap with the TSP.”  Okay.

Al: That’s long winded, but we’re getting there.

Joe: “Roth accounts will be used to splurge when needed. Worried about the impending tax bomb and wanted to mitigate B. O. Roth conversions, if that makes sense. Not sure where taxes are going to be in 2027, but in today’s environment, we are at the top of the 22% tax bracket after deductions will continue to be in post-retirement. Any conversions, we move into the 24% tax bracket. My back-of-the-napkin calculation puts us at the top of the 24% tax bracket once our RMDs are materialized. If I do nothing-“

Andi: “Once my RMDs materialize if I do nothing-“

Joe: “-will only be greater if one of us decides to die. What to do?” All right. So he’s going to be in the 24%. He’s doing some projections.

Al: Yeah.

Joe: So what’s the benefit?

Al: Right. Yeah. So if you convert in the same tax bracket, you’re going to be into the future.

Joe: The flexibility. I think it’s the biggest benefit that you’re going to get.

Al: Because if you don’t convert, you have to take a required minimum distribution whether you want it or not. And therefore, you’re going to be in what tax bracket, whatever tax bracket is now. They’re 59 and 57, required minimum distribution started at age 75. Who knows what the tax rates will be in 16 years from now.

Joe: You’re taking the uncertainty of taxes off the table. Taxes could be a lot lower. Taxes could be a ton higher.

Al: Could be the same.

Joe: But if you take a look at the balance that you have in 16 years by doing the conversions and you have several million dollars in Roth IRAs, that’s 100% all yours, I’m sure you’re not going to complain.

Al: Yeah. I agree with that. So anyways, the uncertainty, plus, as you mentioned, if one of you passes away, now you’re in the single tax bracket. So, so you got to be concerned about that, right? Which is, that means you’re going to be in a higher bracket that way.

Joe: Because I think a lot of people don’t consider this, I get why. Because it’s pretty morbid.

Al:  It is.

Joe: But the RMDs are, they don’t change.  So let’s say you take a look at, if they’re both past the required beginning date.

Al: Right.

Joe: So let’s just assume they’re both 75 and he’s taking his RMDs from his 401(k), she’s taking RMDs from her IRA. And let’s just assume that RMD’s $100,000- one of them dies. The RMD doesn’t get cut in half.

Al: Right.

Joe: It’s the same percentage that you have to pull out on all of the retirement accounts.

Al: Yeah, the only thing that goes away is the lower Social Security benefit. Right? That’s it. Otherwise, it’s the same income.

Joe: Right. Yeah. The force out of the retirement accounts is going to be the same.

Al: Yeah. And the tax brackets are the same married versus single. It’s just with single, you hit the higher brackets much earlier with lower income levels.

Joe: So the income roughly is going to be the same, but now instead of being in 22% tax bracket, you’re likely going to be in a lot higher tax bracket because of how the tax brackets work at single versus married, you kind of double the dollars, you know, to get to that same bracket as a married couple.

Al: Yeah. I think if they don’t do anything under current law, they’d probably be in the 32% bracket, but chances are, I mean- We don’t know if tax rates are going to go up or not, but we know they’re slated to go up in just two years, and that, 24% bracket will be 28%, probably subject to alternative minimum tax as well. Who knows what it’s going to be in the future, but one other quick point, Joe, is if you have, if you paid the same tax and to get the money to the Roth as you do when you pull the money out from your RMD, one other advantage is with a Roth, you can put your asset classes that have higher expected returns. You might still have the same asset mix, but you have assets that have higher expected returns in a Roth, where you get a benefit for taking that risk because you don’t pay tax. So you can end up with more money in your pocket that way.

Joe: Cool.

YMYW Tough Love Made Me Get Serious. When Can I Retire? Should I Do Roth Conversions? (Steve, San Diego, CA)

Joe: All right, let’s go to Steve from San Diego. He goes “Hi Joe, Big Al, Andi. First, I want to thank you for your wisdom you’ve shared with us all these years. You’ve helped many people achieve the holy grail of financial independence and a financially healthy retirement. That’s no small feat. And you made a significant contribution to society.” Wow, Steve. Look at you.

Al: Nice.

Joe: It seems like-

Andi: He’s buttering you up to ask you a Roth conversion question.

Joe: “I’ve been listening to your show for about 8 years, and it just keeps getting better and better. And I love the humor, which makes the subject so enjoyable. The banter is great, and the knowledge is stellar. If I can get my own essentials out of the way, let’s do that. I love a little dark roast coffee, an occasional glass of red wine, or a bottle of craft beer.  My favorite food is dark chocolate. I drive an older car so I can throw all of my money into investments.”  Wonderful. All right. “And I wrote to you about 5 years ago when I was 66. And you answered on the show and my portfolio at the time was worth about $100,000. Al, he said I’ll be living in a trailer. Joe, he said I better be able to do a side hustle from my wheelchair until I’m 80.”

Al: You remember that?

Joe: I don’t remember that.

Al: I don’t either, but it sounds like something we might have said.

Joe: A wheelchair side hustle?

Al: Yeah.

Joe: Okay. “By the grace of God, I don’t have to worry about either of those.  I will say I’ve been in some very nice trailers, and theoretically, I can do a side hustle, as you say. I appreciate the tough love he gave me even though it was tough on me at the time.  It spurred me on to get even more serious about my nest egg.  Now I can give you the true details here. I’m 71, a single male. No kids. No pets. No exes. My current investments add up to about $775,000. We’re in the middle of a bull market around Thanksgiving in 2024 as I write this. Here’s the breakdown. Rounding up for each.  $150,000 in a brokerage account. $575,000 in a rollover IRA. $2000 in a Roth. $39,000 in a self-employed 401(k). $3000 in an HSA and about $9000 in a crypto account.  My current income is $140,000 per year before taxes. Social Security is $47,000 per year also before taxes.  My current expenses are about $100,000 annually. I don’t have a pension, so my only source of income and earnings is from work, plus Social Security, plus my investments. The investments are all in equities, and I include a number of dividend stocks, plus REITs, plus an MLP, and bond like funds. In addition to a few growth stocks, dividends and interest are currently about $28,000 per year. I also have a house worth $600,000 if you believe Zillow, and the remaining mortgage on that is less than $300,000.  So the equity is about $300,000 plus. But we know that’s not something easily gotten to, although I guess it does count on my net worth. Understanding the stock market is volatile, and there could be a sequence of return risks, my questions are these. First, when can I retire? And second, should I be doing Roth conversions at any point over the next few years?  Thank you so much for your wisdom and guidance, aka opinions.  Always keep in mind that you are appreciated out there in this podcast, in Radio Land, and we all wait eagerly for those episodes on Tuesdays, Steve in San Diego.” Steve, the wheelchair side hustle.

Al: Yeah, I guess he got serious. Well, I’ll tell ya, Steve, you went from $100,066 to $800,000 in 5 years. You did take it seriously, and this put you in a whole different situation.

Joe: He wants $100,000 a year, he’s got $50,000. Coming from Social Security. When can I retire? He can retire soon.

Al: I would say soon too, because when you’re in your 70s, you can probably do a 5% distribution rate. Just saying. If he had $1,000,000, that’d be $50,000. He’s basically there. So, he’s really close. Or, I mean, he’s just very close. You could potentially even do it now just by, you might have to watch expenses just a wee bit, but, yeah, should be all right.

Joe: Yeah, I would say a couple more years for sure, just to, to pad that, that savings, but he’s all in equities. I would start toning down the risk a little bit here, Steve, because you’re going to have to take, you know, let’s say anywhere from a 4% to 6% percent distribution from that overall account.

Al: Correct.

Joe: If the market drops 20%.  You know, that’s a pretty big number.

Al: Yeah, it is.

Joe: You know, $8,000,000, $9,000,000, depending on when you actually retire. So.

Al: Yeah. And so, so if you could, get it up to $1,000,000, let’s just say based upon your numbers and maybe at least $250,000 is safe because you need about $50,000 a year just for it to supplement Social Security, then maybe something like that.

Joe: I don’t think Roth conversions make a ton of sense for Steve.

Al: I agree with that.

Joe: You got $575,000 and you’re taking a fairly large distribution. You’re going to be spending the distribution. Your RMDs are probably going to not push you into any higher tax bracket.

Al: I 100% agree. Especially because he needs them. So I wouldn’t even worry about that.  Yep.

Joe: I can’t believe you said he’s going to be living in a trailer.

Al: Well, I can’t believe you said to be got a side hustle from a wheelchair until 80.

Andi: Nice job. Tough loving on him so that he got his portfolio up so high. That was, he’s accrediting that to you guys.

Joe: Yeah. He still probably needs to do a wheelchair side hustle.  He’s still a little short.

Al: Not necessarily. He’s pretty close.

Joe: Still a little short, Steve.  But no, very good job. Great job saving.  Yeah. And good luck in retirement and thanks for the very kind words. It’s always nice.

Al: It’s nice to hear. Even when we kind of treated you poorly. Joe: Yeah.  It’s called tough love, Al.

Al: And that’s what he said.

Download the Complete Roth Papers Package for free

Andi: Steve’s situation is probably different from yours – maybe Roth conversions make sense for you. Download our Complete Roth Papers Package to find out. This bundle of guides includes our Roth IRA Basics Guide to get you started, the 5-Year Rules for Roth Withdrawals, and the Ultimate Guide to Roth IRAs. It’s packed with useful stuff: you’ll learn the difference between a Roth contribution and a Roth conversion, the pros and cons of saving in a traditional IRA vs. a Roth IRA vs. a Roth 401(k), how to withdraw money from your Roth without penalty, and what can you do if you make too much money to contribute directly to a Roth. The Complete Roth Papers Package is yours free, courtesy of Your Money, Your Wealth® and Pure Financial Advisors. Click or tap the Complete Roth Papers Package link in the episode description to get yours.

Can Grandson Withdraw 529 Funds From Roth After 5 Years? (Barbara, NJ)

Joe: Alright, let’s go to Barbara from New Jersey. Goes, “Hello Joe, Big Al, Andi.  Financial spitball is gonna have to wait. I’m 73, drive a 2018 Honda HRV and drink a little red wine.  If there’s no red, I’ll drink white.” There you go. “My question’s not about me, it’s about my grandson. He’s 18. My son-in-law opened a 529 plan for Nick when he was born. As it turns out, Nick has become an electrician. While some money in the 529 plan will pay for those educational expenses, there absolutely will be some left over. I started the process to roll over that money to a Roth IRA, but some rules around this are not clear to me. I’ve searched and searched and cannot find an answer to the following. Mainly, I need to know, if Nick ever needs those funds, would he be able to withdraw the 529 rollover contribution after the account has been open for 5 years?  I know the earnings cannot be touched till 59 and a half, unless $10,000 for a phone, home, etc. I love your podcast. I just found it a few months ago and have become a forever listener.”

Andi: Dang!

Joe: All right. Thank you. “Thank you for any info you may proffer, Barbara.” Proffer. So she’s gonna move the money into a 52- or the 529 plan dollars, she’s gonna move out and put it into the Roth.  So she’s going to put $6000, $7000 into the Roth IRA. After 5 years, she’s curious, hey, can he take those contribution dollars out without any penalties?  And I would say the answer is yes.

Al: I would say so too. Although this is such a new thing. I’m not sure IRS has even discussed it, but that’s how other conversions are.  So by the way, just so you know, so this is a relatively new law. You can take $35,000 from a 529 plan and convert it to a Roth, but several caveats. So you have to have had that Roth for 15 years or longer. Okay.

Joe: Roth or 529 plan?

Al: 529, sorry. The 529 for 15 years, you’re limited to your annual contribution amount, which is $7000 right now, plus your contributions and earnings of the last 5 years, you can’t do it on those. And the Roth owner has to be the same as the beneficiary for the 529 plan. So if you can do all of those things, you can get $7000 in a year. Oh, and the individual has to have earned income to be able to qualify for this. So it’s a lot of steps here, but it can be done. And I’m assuming it’ll be similar to other conversions where you have access to the principal within 5 years.

Joe: Yeah, the tracking or tracing rules is going to be pretty hard to find.

Al: It is.

Joe: So let’s say Nick’s already got a Roth IRA. He’s made contributions in the past.  Then his grandmother puts money into this from the 529 plan, assuming that Nick’s the beneficiary and has earned income that qualifies for a Roth IRA.

Al: Correct.

Joe: She puts whatever dollar amount that she puts in for this year or the next couple of years.  Nick needs the money 5, 6 years from now. Right. It’s going to be so hard to figure out, well, what were contributions versus rollover versus this versus that.

Al: It is. So here’s a better idea. Don’t take money out of the Roth.

Joe: There you go.

Al: Let it grow for retirement tax-free.

Joe: Okay. Great. Thanks for the question.

Can We Avoid Capital Gains Tax With This Appreciated Stock Gifting Strategy? (P Ware)

Joe: Here’s another one from, I don’t know where this question’s coming from.

Andi: This one’s P Ware. This is from somebody who saw us on YouTube and then emailed info@purefinancial.com.

Al: Okay.

Joe: “My wife and I have an adult daughter with little income this year. Can we give her $36,000 of appreciated stock so that when she sells it, there is zero capital gains at the tax of sale?  Then she can gift it back to us after the sale and save the 15% taxes we pay. Does that make sense?” Sure, if you like tax evasion.

Al: Well, I would say it’s probably tax avoidance. It wouldn’t fly if it were checked, because you’re basically just doing this to avoid a tax. So I wouldn’t try it. I mean, theoretically, you could. But-

Joe: So you’re gifting $36,000 to your daughter. Your daughter doesn’t have any income, right? The daughter sells the stock. They pays no capital gains tax because she’s in, or yeah, she’s in the zero, 10% or 12% tax bracket.

Al: Right.

Joe: And then when she sells the stock, then she’s going to gift it back to Mom and Dad.

Al: Yeah. And because that would be in, well, I guess, I guess she’s below the gifting limits, but, yeah, I wouldn’t do it. I wouldn’t do it because basically you’re trying to avoid a tax. IRS doesn’t like this sort of thing, this kind of strategy.

And it’s, you see this in different things. It gets, always gets overturned when it’s found and looked at.

Joe: What about, when does the kiddie tax come into play again?

Al: Well, I think it’s up to age 18 and younger, or 24 if they’re a full-time college student.

Joe: So then, but it’s still taxed at the parent’s rate.

Al: Correct. That’s correct.  So it would have to be a, well, he says adult daughter, so assuming that the kiddie tax doesn’t apply, but I wouldn’t do it. I think it’s, the only way this would really work is if you really wanted the daughter to have the $36,000 gifted to her.  She can sell it, pay little or no tax, and then keep it. If that’s your goal, then this is a great strategy. If you’re just trying to avoid this tax, I wouldn’t do this.

Should I Create an LLC for Rental Properties? (Mike, voice)

Mike: “Hello, this is Mike. I have a question about rental properties. My wife and I own 3 duplex rental properties.  And we’ve been told by a few people that it might be financially advantageous for us to create an LLC for the rental properties and run them as a business versus just taking the income as personal income. What are your thoughts? Thank you.” Okay.

Andi: He decided to call from his car.

Joe: Yeah.

Al: All good.

Joe: He’s driving.

Al: Right. He’s driving to one of the rentals.

Joe: He’s driving to a duplex.

Al: Yeah.

Joe: He’s got to collect his rent.

Al: That’s right.

Joe: LLC Al, what do you think?

Al: Well, it’s a great question and you hear this a lot. You should have LLCs and I can tell you it doesn’t do anything tax-wise. Because if you set up an LLC as a husband and wife, it’s a single-member LLC, it’s disregarded. So it’s, there’s not even a separate tax return. It just goes on your individual tax return just as it would normally. So why do people have LLCs is because of asset protection, right? So they put their properties in an LLC. Something goes wrong with one of the properties, they get sued. Then theoretically the assets of that LLC are the only assets that are available for a lawsuit or a judgment, right? If you want to have ultra protection, you got 3 properties, you set up 3 LLCs. There’s a huge hassle factor, but that’s what some people do if it’s worth it to them. Or you can just get liability insurance and call it good. Or maybe you do both, but it’s a- Joe, it’s for liability. It’s not for tax purposes.

Joe: Well, as a rental, he’s got a duplex. It’s people that have multiple duplex that they’re running that like a business anyway.

Al: Yeah, you already are. You should be. And in other words, anything that is deductible in LLC is also deductible on your Schedule E personal tax return. There’s no difference in what’s deductible and what’s not.

Al: Yep. That’s what I’m saying.

Joe: Very good.

Qualified Charitable Distrubutions Don’t Make Sense to Me (GetSmart Paul, YouTube)

Joe: This person writes in, he doesn’t think a QCD donation, it doesn’t make sense to him.

Al: Okay.

Joe: So QCD, Qualified Charitable Distribution, just backdrop on that, is that you can give up to $100,000 or is it a little bit more now, they index that with inflation?

Al: It is indexed, so it’s a little bit more than $100,000 I think.

Joe: So you could give that directly to a charity versus taking the RMD. And so he’s like, well, I, this doesn’t make sense.

Al: Why? Why would I do that? Why don’t I just take the RMD pay the tax, don’t I, think that’s what he is gonna get to.

Joe: So he was like, “Taking the RMD when I don’t need the cash is better than giving it all to charity. For example, if I don’t pay state income tax and the RMD is federally taxed at 25% and 35%, then I’m basically donating the 65% to 75% out of my pocket. That money can be reinvested. What am I missing?”

Al: Nothing.

Joe: Nothing. You’re not charitably inclined, so don’t do it. If you’re charitably inclined, this is another way to give to charity. So if you’re already giving to charity and you’re taking a charitable deduction, you know, but now that most people take the standard deduction, the QCD works out quite well because you, it- The distribution avoids the tax return, it goes directly to the charity.

Al: Yeah, exactly. So you don’t have to pay tax on what would have been a required minimum distribution. But I, and I used to get this question a lot as a tax preparer in my old days, which is simply this, don’t. I do. Do I do better giving to charity than I would just taking the money? The answer is no, absolutely not. Because all you do in a case like this is you just pay the tax. So you end up with more dollars in your pocket. But if you’re charitably inclined anyway, this is a way to create a tax deduction that you might not otherwise have.

Joe: Yeah, right. If you’re already giving to charity-

Al: – that’s the key.

Joe: -then it’s looking at what is the most effective and efficient way to give to the charity to maximize whatever tax benefits you’re looking for.

Al: Right, yeah.

Watch the Retirement Pop Quiz on YMYW TV, Download the Retirement Readiness Guide for free

Andi: Pop quiz: are you required to take minimum distributions from your Roth account? How much money do Americans think they need when they retire? Are you ready for retirement? Test your retirement knowledge this week on the Your Money, Your Wealth® TV show, as Joe and Big Al give you a Retirement Pop Quiz: 18 Questions To Get You Ready to Retire. With each question, Joe and Big Al have actions you’ll want to take now to secure your future retirement. Watch Retirement Pop Quiz on Your Money, Your Wealth TV, and download the free Retirement Readiness Guide to find out how to control your taxes in retirement, create income to last a lifetime, make the most of your retirement investing strategy, and much more. You’ll find links for both in the description of today’s episode in your favorite podcast app, or in the show notes at YourMoneyYourWealth.com, along with the episode transcript.

Do My Kids Inherit My Savings Account Without Tax Penalty? What’s a Safe, High-Return Investment for Them? (Sherri, CA)

Joe: Alright, we got Sherri from California writes in, Big Al.

Al: Okay.

Joe: “My savings account has in the event of death- has an in the event of death, my children inherit my money. Does that go to them without tax penalty? I’d like to invest my money in safe investments that gives a higher interest rate of return. Do you have any recommendations?”  No, zero recommendations for Sherry in California. But I’m assuming she’s got a savings account and she passes away. She wants to know what happens to the money.

Al: Yeah.

Joe: The kids inherited sounds like there’s a transfer of death on the account. Without tax penalty. No, there’s a step-up in tax basis, I don’t know, I don’t-

Al: Yeah, that’s right.

Joe: It’s a savings account.

Al: Savings account, so-

Joe: It could be liquid.

Al: I mean, there’s, well, there’s not really a step-up because there’s no growth. But she would have been paying interest, taxes on interest all throughout. So, but anyway, yeah, I think that’s right. I think she’s talking about a transfer on death account, which you can do without regard to a will or a trust. You can just take like a savings account. Even a brokerage account and have a transfer on death. So it would go directly to your beneficiaries. In the case of a brokerage account, typically there is growth or loss, but it gets stepped up to current value. In the case of a savings account, it’s already principle, so it just is what it is. There’s no penalty. In fact, the kids get and that’s true of any inheritance except for retirement accounts where they have to pay taxes. They take the money out. But typically you get an asset from an inheritance. You don’t pay tax on it.

Can an IRA Fund a Charitable Remainder Unitrust? (Houry, NY)

Joe: Speaking of retirement accounts, we have a question that came in, “Can an IRA or company retirement plan fund a CRUT? Is there any amount limitation?”

Andi: What is a CRUT?

Joe: The charitable remainder unitrust, so-

Al:  I got some information on that, Joe.

Joe: Yeah. You can and this was a strategy that people are using depending on the size of the retirement account that you would use it as like the old stretch.

Al: Yeah, now that would be to set up the IRA, the charitable trust as a beneficiary of the IRA. And that, I think that still works, but there’s something new that just happened with the SECURE Act. You actually can do a once-in-a-lifetime amount from an IRA to a charitable remainder unit trust or charitable gift annuity of $50,000.

Joe: Yes, not very much.

Al: No, $53,000 in 2014, but, yeah, it’s not very much. I’m not sure who would do that, but you can.

Joe: Right.  So, charitable remainder trust, let’s explain that for a second, isn’t it? Right.  They’re used to avoid capital gains tax.

Al: Yeah, that’s the primary purpose.

Joe: And, so, let’s say you bought an investment for $100,000 and it’s worth $2,100,000 today. So you have a $2,000,000 gain. A lot of times, there’s a ton of tax there where most people don’t necessarily want to pay the tax. So they might hold on to that asset until they pass away, and then the beneficiaries would get a full step-up in tax bases, they could sell that asset and not pay any tax.

Al: Right.

Joe: However, if they need liquidity, if they need to use some of that asset, you can sell it outright and pay a bunch of tax, or there’s strategies such as a charitable remainder trust or a CRUT or a tax exempt trust where you can put that asset in the trust, the trust sells the asset, it pays no tax, you then get an income stream from the trust, and then the charity gets the remainder, depending on when you pass away. If you live until life expectancy, it could be as little as 10%. If you pass away prior to life expectancy, it could be a lot more than that.

Al: Yeah, that’s exactly right. And so typically, it has to be set up, Joe, where at least 10% goes to charity. I mean, that’s, the design. That would be kind of the minimum. Now, but that’s based upon actuarial tables. So if you live less than or if you, live less than normal life expectancy, charity will probably get more than 10%. If you live longer than normal life expectancy per the IRS tables, then charity may get less than 10%. So it’s a way to not pay taxes currently, although we’re when you get your distributions, annual distributions, quarterly distributions, however you set it up, you will pay tax on those distributions. It’ll be some interest in dividends depending upon the earnings in the charitable trust and the rest will be capital gains. That same capital gain that you tried to avoid, you will pay tax on it. Joe, it just comes out slowly over time, which can be an advantage because you might be in lower tax brackets and plus deferring a tax is always a good thing.

Joe: I wonder what the goal is that Hour-ee, what’s his name?

Andi: Houry. It’s her, and her name is Houry.

Joe: Oh, sorry. Houry. Houry from New York. I have no idea what the goal is.

Al: I don’t know either. But those IRAs and charitable trust, I mean, so those are the couple things I’ve heard. Is that new once-in-a-lifetime thing where you can put $50,000 in from an IRA or the other one is-

Joe The cost of the trust-

Al: You would never do it for that.

Joe: It’s going to cost way more to administrate that trust, it’s going to cost way more than whatever savings that you get by putting $50,000 in it.

Al: Right. So it would only be if you already have one, right?

Joe: I suppose, yeah.

Al: Yeah, right. So I don’t, like I say, that’s a pretty limited thing. The more important thing I think is the, is it’s setting up a charitable trust and having it as the beneficiary of an IRA could accomplish something similar to the stretch, not as good as a stretch, but you get sort of some of the same deferral.

Joe: Alright, that’s it for us. Have a wonderful weekend, happy holidays. Show’s called you’re wonderful… It’s a wonderful life.

Al: It’s a wonderful life.

Joe: I’m just in the holly, holly, what’s it?  Holiday spirit.

Al: Yes.

Andi: Happy New Year.

Al: It’s also Your Money, Your Wealth®. Thanks for listening.

Joe: Alright, we’ll see you soon.

Outro: Next Week on the YMYW Podcast

Andi: There you have it – the final episode of 2024. Happy new year, friends. I hope you enjoyed listening to YMYW this year as much as we’ve enjoyed making it for you, and I hope 2025 brings everything you hope for. Next week in episode 511 we’ll continue our annual tradition with the Your Money, Your Wealth Podcast Best of 2024. Check out the best of 2021, 2022, and 2023 in the episode description. Edward in Illinois, Pebbles and Bam Bam in Kentuckystone, Keith in Connecticut, and Gus in Philly, listen for answers to your questions in YMYW podcast 512.

If you haven’t already gotten serious about your retirement plans like Steve did earlier in the episode, what better time. Start the new year off with a resolution to get a Free Financial Assessment from the experienced professionals on Joe and Big Al’s team at Pure. They’ll analyze your financial situation, identify any potential roadblocks, and help you create a personalized plan to get you where you want to be in retirement. Click the free assessment link in the episode description or call 888-994-6257 to schedule yours.

Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this podcast and does not represent that the securities or services discussed are suitable for any investor. As rules and regulations change, podcast content may become outdated. Investors are advised not to rely on any information contained in the podcast in the process of making a full and informed investment decision.
_______

Listen to the YMYW podcast:

Amazon Music

AntennaPod

Anytime Player

Apple Podcasts

Audible

Castbox

Castro

Curiocaster

Fountain

Goodpods

iHeartRadio

iVoox

Luminary

Overcast

Player FM

Pocket Casts

Podbean

Podcast Addict

Podcast Index

Podcast Guru

Podcast Republic

Podchaser

Podfriend

PodHero

Podknife

podStation

Podverse

Podvine

Radio Public

Rephonic

Sonnet

Spotify

Subscribe on Android

Subscribe by Email

RSS feed

See All Platforms