Estate tax exemption is around $27 mil for a married couple.
They both have $30 mil.
Husband passes. The estate moves to his/her spouse tax free.
The spouse passes. Now, estate tax kicks in.
Anything above $27 mil is subject to estate tax.
In anticipation of being $3 mil above the exemption, the wife converts $8 mil from tax deferred to Roth. She pays the taxes from a brocherage account (37% or $3 mil).
She has essentially decreased her estate to $27 mil by this massive conversion. Estate taxes due: $0. Kids will not pay inheritance tax (different than estate tax) on the $8 mil because it passes to them as Roth.
Scenario 2:
Wife decides not to convert. Estate taxes owed on $3 million ($1.2 million) and kid has to pay ordinary income tax on $8 million ( $3 million, 37% tax bracket). Total tax liability: $4.2 million.
Looks like by initiating the Roth conversion, she saved her heirs $1.2 million in taxes, and allowed the $8 million to grow to $16 mil 10 years later tax free!!!
Question: when someone inherits a Roth, does the growth of the account after it transfers to the heir continue to be tax free? In the words, if I empty it 10 years later and it has doubled, do I take the basis and the growth tax free?
They both have $30 mil.
Husband passes. The estate moves to his/her spouse tax free.
The spouse passes. Now, estate tax kicks in.
Anything above $27 mil is subject to estate tax.
In anticipation of being $3 mil above the exemption, the wife converts $8 mil from tax deferred to Roth. She pays the taxes from a brocherage account (37% or $3 mil).
She has essentially decreased her estate to $27 mil by this massive conversion. Estate taxes due: $0. Kids will not pay inheritance tax (different than estate tax) on the $8 mil because it passes to them as Roth.
Scenario 2:
Wife decides not to convert. Estate taxes owed on $3 million ($1.2 million) and kid has to pay ordinary income tax on $8 million ( $3 million, 37% tax bracket). Total tax liability: $4.2 million.
Looks like by initiating the Roth conversion, she saved her heirs $1.2 million in taxes, and allowed the $8 million to grow to $16 mil 10 years later tax free!!!
Question: when someone inherits a Roth, does the growth of the account after it transfers to the heir continue to be tax free? In the words, if I empty it 10 years later and it has doubled, do I take the basis and the growth tax free?
Statistics: Posted by stay.the.course — Sun Jun 09, 2024 9:51 pm — Replies 57 — Views 3822