Easy death question

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zz4
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Easy death question

Post by zz4 »

Hypothetical: I want to leave a 50/50 split between my wife and son upon my death. I have 100k in Ally and 100k in an IRA. Does it matter who gets what? EXTRA INFO: wife already has over 1 mil. In her IRA. (is that an issue?)

THANKS
dalerobk
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Re: Easy death question

Post by dalerobk »

One will be subject to tax and the other won't. Your wife has the option to treat the ira as her own.
Gill
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Re: Easy death question

Post by Gill »

Not only is the tax treatment different but your wife may have a right of election to take her statutory share in lieu of the provisions you made for her.
Gill
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zz4
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Re: Easy death question

Post by zz4 »

Is right of election conditioned upon length of marriage and such? We are recently married and the IRA is premarital. My son is from a previous marriage. Thanks for the help
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grabiner
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Re: Easy death question

Post by grabiner »

Your wife's existing IRA may be relevant if she inherits an IRA, treats it as her own, and one of the IRAs has some non-deductible contributions. If you had made $50K of non-deductible contributions to your $100K IRA, you could withdraw the money and pay tax on only $50K. But if your wife combines that with her $1M IRA, she now has a $1.1M IRA with a basis of $1.05M, so almost all the money she withdraws will be taxed. (If you convert the traditional IRA to a Roth IRA before your death, paying tax on the $50K, this issue goes away; your wife then inherits a $100K Roth IRA on which she does not need to take distributions in her lifetime.)

The other factor with your wife's IRA is that the RMDs from that IRA will provide her with some income, just as your son's salary does if he is still working, and this affects tax brackets. The tax bracket will affect both the rate at which inherited IRA withdrawals are taxed, and the rate at which income on the inherited taxable account is taxed, so it may affect the preference in either direction.
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HueyLD
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Re: Easy death question

Post by HueyLD »

zz4 wrote: Sat Oct 03, 2020 3:57 pm Hypothetical: I want to leave a 50/50 split between my wife and son upon my death. I have 100k in Ally and 100k in an IRA. Does it matter who gets what? EXTRA INFO: wife already has over 1 mil. In her IRA. (is that an issue?)
Which state are you a resident of? If it is a community property state, your wife already owns 50% of your Ally and IRA accounts if such funds are considered community property (very likely).
Gill
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Re: Easy death question

Post by Gill »

zz4 wrote: Sat Oct 03, 2020 4:27 pm Is right of election conditioned upon length of marriage and such? We are recently married and the IRA is premarital. My son is from a previous marriage. Thanks for the help
It depends on your state law. Length of marriage is not usually a factor as it can be with divorce.
Gill
Last edited by Gill on Sat Oct 03, 2020 6:33 pm, edited 1 time in total.
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aristotelian
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Re: Easy death question

Post by aristotelian »

If it is an Inherited IRA, the after tax value will be less than 100K. If you want to ensure 50/50 split you should give them each 50% of every account.
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zz4
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Re: Easy death question

Post by zz4 »

No inheritance tax for them as NJ residents. I'm not sure about federal taxes.
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Re: Easy death question

Post by abuss368 »

Believe IRAs have to go to a spouse first correct?
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TheGreyingDuke
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Re: Easy death question

Post by TheGreyingDuke »

zz4 wrote: Sat Oct 03, 2020 7:20 pm No inheritance tax for them as NJ residents. I'm not sure about federal taxes.
I think the tax referred to was Federal (and state) income tax.
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Gill
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Re: Easy death question

Post by Gill »

abuss368 wrote: Sat Oct 03, 2020 7:34 pm Believe IRAs have to go to a spouse first correct?
No requirement to leave to spouse.
Gill
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Re: Easy death question

Post by abuss368 »

Gill wrote: Sat Oct 03, 2020 8:10 pm
abuss368 wrote: Sat Oct 03, 2020 7:34 pm Believe IRAs have to go to a spouse first correct?
No requirement to leave to spouse.
Gill
Is it anything like a 401k plan where usually a written approval from spouse is required when selecting someone other than the spouse as beneficiary?
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InMyDreams
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Re: Easy death question

Post by InMyDreams »

from a different thread
InMyDreams wrote: Fri Jun 22, 2018 5:32 pm "That case involved a worker who, after his wife’s death, named his three children beneficiaries of his 401(k). Dad later remarried and, within a few weeks, died. Despite the fact that the kids were named on the official beneficiary form, the second wife argued that the law said the money was hers. The courts agreed, voiding the worker’s wishes and disinheriting the children. "

"This ironclad rule can’t be undone by a pre- or post-nuptial agreement in which the spouse forsakes the death benefit. A pre-nup won’t work because the spouse (not a fiancée) has to waive the benefit; a postnup is useless unless it is followed by the spouse actually signing a written waiver."


http://www.kiplinger.com/article/retire ... DxMgfvQ.99

And this article while I searched for the other:
http://www.investmentnews.com/article/2 ... -agreement
dalerobk
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Re: Easy death question

Post by dalerobk »

That same article specifically says that IRAs don't have that same rule. There is no protection for the spouse with an IRA. And op mentioned an IRA, not a 401k.
InMyDreams
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Re: Easy death question

Post by InMyDreams »

dalerobk wrote: Sat Oct 03, 2020 9:37 pm That same article specifically says that IRAs don't have that same rule. There is no protection for the spouse with an IRA. And op mentioned an IRA, not a 401k.
Thank you!
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