Ed Slott's Retirement and Inheritence Advice?

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Indexer88
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Ed Slott's Retirement and Inheritence Advice?

Post by Indexer88 » Mon Feb 23, 2009 9:02 am

Ed Slott makes an argument for the careful generational passing on of wealth. He had a PBS special a while back.

Here's one of his books: http://www.amazon.com/Your-Complete-Ret ... 410&sr=1-1

I believe his main point is that you have to very carefully identify the beneficieries of IRA and other retirement funds. This can make an important difference with taxes.

I could not find prior posts on him. If there are some, please post links.

Please let us know what you think of his ideas. Thanks in advance.

Ron
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Post by Ron » Mon Feb 23, 2009 9:12 am

I've referenced Ed's "techniques" in speaking to my own lawyer, concerning estate issues.

His message is very simple. If you pass, most of your life "fortunes" will go to the government, unless you are aware of the current techniques in estate management (such as trust, pour over wills, and streach IRA's).

My attorney (specality in elder law) is aware of Ed's "message" and uses it with his clients, where needed.

IMHO, Ed has a message that people should be aware of. If it pertains to your situation, only you (and possibly a professional - such as an attorney) can determine if it applies to your situation.

Anyway, thats my story :lol: ...

- Ron

mptfan
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Post by mptfan » Mon Feb 23, 2009 9:32 am

Ron wrote: His message is very simple. If you pass, most of your life "fortunes" will go to the government, unless you are aware of the current techniques in estate management (such as trust, pour over wills, and streach IRA's).
This message is false. The vast majority of people simply do not have a large enough estate to worry about estate taxes, so it is very likely that none of your fortune will go to the government, even if you know nothing of any techniques in estate management. The current estate tax exemption is $3,500,000 per person, and I recall reading somewhere that the median net worth is less than $100,000.
Last edited by mptfan on Mon Feb 23, 2009 9:36 am, edited 1 time in total.

williamg
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Post by williamg » Mon Feb 23, 2009 9:35 am

For those not impacted by estate taxes, perhaps the most important point is to have your investments properly set up with the beneficiaries you choose. They will receive the assets quicker and without the hassle and some cost in going through probate.

Ron
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Post by Ron » Mon Feb 23, 2009 9:50 am

mptfan wrote:
Ron wrote: His message is very simple. If you pass, most of your life "fortunes" will go to the government, unless you are aware of the current techniques in estate management (such as trust, pour over wills, and streach IRA's).
This message is false. The vast majority of people simply do not have a large enough estate to worry about estate taxes, so it is very likely that none of your fortune will go to the government, even if you know nothing of any techniques in estate management. The current estate tax exemption is $3,500,000 per person, and I recall reading somewhere that the median net worth is less than $100,000.
May be "false" for most people. For us (wife/me) your median net worth is off (way off :lol: ).

Again, you have to determine where you are, and if Ed's suggestions fit your needs/requirements. No more. No less.

And depending on your specific situation (ours is having a disabled son, with a wish to have our IRA's continue to gain in value and leave to charity after he passes) it makes sense to plan for the future, when you are no longer here.

- Ron
Last edited by Ron on Mon Feb 23, 2009 9:52 am, edited 1 time in total.

livesoft
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Post by livesoft » Mon Feb 23, 2009 9:51 am

I've seen Ed Slott's stuff on PBS. He has a very simple message:

If you don't put a valid beneficiary designation on your retirement accounts, then you will get screwed.

However, if you do put a valid beneficiary on your retirement accounts, then you will generally be OK.

I can easily see where he is coming from. Often one does not change the beneficiaries on their retirement accounts when something changes in their lives: divorce, marriage (oops, wrong order!), birth of a child, death of a beneficiary, etc. I know that I have a 403(b) plan at a former employer that I had not looked at in years and years. When I did, I noticed that my 2nd child had been born after I had stopped looking and thus my contingent beneficiaries were wrong.

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sewall
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Post by sewall » Mon Feb 23, 2009 9:57 am

livesoft wrote:If you don't put a valid beneficiary designation on your retirement accounts, then you will get screwed.
"Screwed" as in delayed, hung up in probate. Or "screwed" as in pay more in tax. Or both?
The Incidental Economist (blog) :::: Austin Frakt (flesh)

Ken Reckers
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Post by Ken Reckers » Mon Feb 23, 2009 11:53 am

sewall wrote:
livesoft wrote:If you don't put a valid beneficiary designation on your retirement accounts, then you will get screwed.
"Screwed" as in delayed, hung up in probate. Or "screwed" as in pay more in tax. Or both?
Both, I guess. And not just estate tax (which may not matter for some people), but ordinary income tax on the IRA distributions. "Screwed" as in distributions from your IRA might have to be made to your beneficiary using a shorter life expectancy than otherwise possible. Slott likes to use the word "stretch," as in stretch those IRA payments out over the longest possible life expectancy, to stretch out the tax deferral. "Really screwed" would mean your intended beneficiary unwittingly turns the IRA into non-retirement funds, making the entire IRA immediately taxable in one lump sum.

P.S. Edited to add: Natalie Choate recommends his books.
http://www.ataxplan.com/resources/books.cfm

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ruralavalon
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Ed Slott's Retirement and Inheritence Advice?

Post by ruralavalon » Mon Feb 23, 2009 6:35 pm

I could not find prior posts on him. If there are some, please post links.
Here are some prior threads which mention Ed Slott. He seems to be highly regarded, and well informed.
http://www.bogleheads.org/forum/viewtop ... 18&start=0 .
http://www.bogleheads.org/forum/viewtop ... 22&start=0 .
http://www.bogleheads.org/forum/viewtop ... 00&start=0 .

Ron
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Post by Ron » Mon Feb 23, 2009 6:50 pm

livesoft wrote:I've seen Ed Slott's stuff on PBS. He has a very simple message:

If you don't put a valid beneficiary designation on your retirement accounts, then you will get screwed.

However, if you do put a valid beneficiary on your retirement accounts, then you will generally be OK.

I can easily see where he is coming from. Often one does not change the beneficiaries on their retirement accounts when something changes in their lives: divorce, marriage (oops, wrong order!), birth of a child, death of a beneficiary, etc. I know that I have a 403(b) plan at a former employer that I had not looked at in years and years. When I did, I noticed that my 2nd child had been born after I had stopped looking and thus my contingent beneficiaries were wrong.
Just to show how a simple thing as beneficiary allocation can become a "challange" and possibly lead to something you did not count on, see the following:

http://en.wikipedia.org/wiki/Per_stirpes

Of course, the good thing is that you won't be around to see the results!

- Ron

mtl325
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Post by mtl325 » Mon Feb 23, 2009 7:17 pm

mptfan wrote: This message is false. The vast majority of people simply do not have a large enough estate to worry about estate taxes, so it is very likely that none of your fortune will go to the government, even if you know nothing of any techniques in estate management. The current estate tax exemption is $3,500,000 per person, and I recall reading somewhere that the median net worth is less than $100,000.
Ah, but the estate tax isn't the only tax when transferring wealth. Many states have an inheritance tax (that's attached to the recipient of the wealth) and not the donor. Sliding scale in Pa depending on relationship, from Mom -> Children 4.5% off the top.

Trust taxation - one hits the bracket cap around 12,000. Dad is passing about 500k in CD/bonds but distribution can't happen for a few months to a year after passing. All of a sudden you don't have access to the money and Dad's interest payments are taxed at 35%

I am in the field so I'm a bit biased, but the advice of a professional is 9 out of 10 going to save you more money than the cost.

mptfan
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Post by mptfan » Mon Feb 23, 2009 7:31 pm

mtl325 wrote: Ah, but the estate tax isn't the only tax when transferring wealth. Many states have an inheritance tax (that's attached to the recipient of the wealth) and not the donor. Sliding scale in Pa depending on relationship, from Mom -> Children 4.5% off the top.
Is there an exemption amount? Thankfully there is no state equivalent tax in Florida.
mtl325 wrote:Trust taxation - one hits the bracket cap around 12,000. Dad is passing about 500k in CD/bonds but distribution can't happen for a few months to a year after passing. All of a sudden you don't have access to the money and Dad's interest payments are taxed at 35%.
This is easily avoided by not having a trust.

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Post by Ron » Mon Feb 23, 2009 8:09 pm

mptfan wrote:
mtl325 wrote: Ah, but the estate tax isn't the only tax when transferring wealth. Many states have an inheritance tax (that's attached to the recipient of the wealth) and not the donor. Sliding scale in Pa depending on relationship, from Mom -> Children 4.5% off the top.
Is there an exemption amount? Thankfully there is no state equivalent tax in Florida.
mtl325 wrote:Trust taxation - one hits the bracket cap around 12,000. Dad is passing about 500k in CD/bonds but distribution can't happen for a few months to a year after passing. All of a sudden you don't have access to the money and Dad's interest payments are taxed at 35%.
This is easily avoided by not having a trust.
A couple of things on wills/trusts...

I'm also a resident of PA. When my FIL passed, his children (including my wife) received the remainder liquidated estate. He did not have a trust (just a will - his wife predeceased him) but it still took over a year to settle.

As far as trusts, there are times that you want the "security" of a trust. An example of this was when my father passed, it would have been interesting to see the results of his will, since I was part of his "first family" and was basically left behind when he married his long time mistress and moved on to his "second family" (no - I did not, nor expect to see anything from his estate). A trust ensures secrecy from "prying eyes".

Secondly, there are times a trust makes sense, such as having an elderly couple and putting direction of current assets under control of a third party (such as in the case of Alzheimer’s). In our case, of course it is needed (Special Needs Trust - SNT) since our son cannot manage his own affairs (financial or otherwise) and could run into problems related to his government support services.

Wills? Maybe for a great deal of folks. Trusts? Most useful for those families that have "challenges".

- Ron
Last edited by Ron on Mon Feb 23, 2009 8:12 pm, edited 1 time in total.

Spirit Rider
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Post by Spirit Rider » Mon Feb 23, 2009 8:11 pm

sewall wrote:
livesoft wrote:If you don't put a valid beneficiary designation on your retirement accounts, then you will get screwed.
"Screwed" as in delayed, hung up in probate. Or "screwed" as in pay more in tax. Or both?
Only individuals may take advantage of lifetime distribution of retirement accounts.

If don't specify a beneficiary or you explicitly name your estate as beneficiary, the money must be removed within five years.

You have therefore prevented your beneficiaries from the tremendous tax deferrral of an inherited retirement account.

Ron
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Post by Ron » Tue Feb 24, 2009 7:54 am

Spirit Rider wrote:Only individuals may take advantage of lifetime distribution of retirement accounts.

If don't specify a beneficiary or you explicitly name your estate as beneficiary, the money must be removed within five years.

You have therefore prevented your beneficiaries from the tremendous tax deferrral of an inherited retirement account.
That's the idea behind a "stretch IRA". Assuming there are three generations (you, your children, your grandchildren), you pass first, leaving your IRA to your spouse (assuming they are still living). On their passing, they bequest the accumulated IRA to their grandchild (not child). Assuming the grandchild is very young, RMD's will have to be done, but due to their projected lifespan, will be very small.

Think about your own IRA. How much do you think it could be worked (disregarding the current market :lol: ) by the time your grandchild retires (possibly 50+ years) in the future. This is one of the tax reduction/delaying ideas put forward by Ed Slott.

- Ron

Bob_H
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Post by Bob_H » Tue Feb 24, 2009 8:30 am

mptfan wrote:
Ron wrote: I recall reading somewhere that the median net worth is less than $100,000.
Except on this site. Here, everyone is a millionaire. Just ask.
Bamagoter.

mtl325
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Post by mtl325 » Tue Feb 24, 2009 2:48 pm

mptfan wrote:
mtl325 wrote: Ah, but the estate tax isn't the only tax when transferring wealth. Many states have an inheritance tax (that's attached to the recipient of the wealth) and not the donor. Sliding scale in Pa depending on relationship, from Mom -> Children 4.5% off the top.
Is there an exemption amount? Thankfully there is no state equivalent tax in Florida.
No exemptions beyond final costs and life insurance, it's a flat tax. Transfers to siblings is 12% and any other non-lineal decentants is taxed at a whopping 15%.

For super low income people PA has something similar to EITC but a family of four has to make a ridiculously small amount (like under 20k). So if a family of 4 earns 10k for the year and receives a 10k bequest taxed at 4.5% maybe they won't have to pay any tax.

mptfan
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Post by mptfan » Tue Feb 24, 2009 3:11 pm

Ron wrote:
Spirit Rider wrote:Only individuals may take advantage of lifetime distribution of retirement accounts.

If don't specify a beneficiary or you explicitly name your estate as beneficiary, the money must be removed within five years.

You have therefore prevented your beneficiaries from the tremendous tax deferrral of an inherited retirement account.
That's the idea behind a "stretch IRA". Assuming there are three generations (you, your children, your grandchildren), you pass first, leaving your IRA to your spouse (assuming they are still living). On their passing, they bequest the accumulated IRA to their grandchild (not child). Assuming the grandchild is very young, RMD's will have to be done, but due to their projected lifespan, will be very small.

Think about your own IRA. How much do you think it could be worked (disregarding the current market :lol: ) by the time your grandchild retires (possibly 50+ years) in the future. This is one of the tax reduction/delaying ideas put forward by Ed Slott.
You can accomplish virtually the same thing in a regular taxable account by investing in a low cost, tax efficient fund like VTSMX. There will be very little tax drag, and the funds will grow almost completely tax deferred until they are sold.

mptfan
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Post by mptfan » Tue Feb 24, 2009 3:11 pm

Ron wrote:
Spirit Rider wrote:Only individuals may take advantage of lifetime distribution of retirement accounts.

If don't specify a beneficiary or you explicitly name your estate as beneficiary, the money must be removed within five years.

You have therefore prevented your beneficiaries from the tremendous tax deferrral of an inherited retirement account.
That's the idea behind a "stretch IRA". Assuming there are three generations (you, your children, your grandchildren), you pass first, leaving your IRA to your spouse (assuming they are still living). On their passing, they bequest the accumulated IRA to their grandchild (not child). Assuming the grandchild is very young, RMD's will have to be done, but due to their projected lifespan, will be very small.

Think about your own IRA. How much do you think it could be worked (disregarding the current market :lol: ) by the time your grandchild retires (possibly 50+ years) in the future. This is one of the tax reduction/delaying ideas put forward by Ed Slott.
You can accomplish virtually the same thing in a regular taxable account by investing in a low cost, tax efficient fund like VTSMX. There will be very little tax drag, and the funds will grow almost completely tax deferred until they are sold, or until you die. It's actually better to do it that way instead of an IRA because when you die, your beneficiary gets a stepped up basis, and they will never have to pay taxes on the capital gains up to the date of your death. Then, when they die and pass it on to your grandkids, they get a stepped up basis too....so the funds pass almost completely tax free! (If you use a stretch IRA, your heirs have to pay tax on any funds that are withdrawn at their regular tax rate)

Norton750
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Post by Norton750 » Wed Feb 25, 2009 9:55 pm

mptfan,

Why so hard on Ed Slott?

You initially used an incorrect argument - assuming that Ed Slott's advice had to do with estate tax - when his biggest point is about correct titling and handling of tax deferred accounts.

And then you argued against tax-deferred accounts when you realized your initial argument was misplaced.

In my case (and I'm sure there are lots of folks in this situation) most of my tax deferred money was initially put into a 401(k) account and then rolled over to an IRA at a later point.

I used the 401(k) largely because of matching funds available from my various employers. So, no - I could not have accomplished the same thing using a taxable account.

This deferred money represents by far the largest part of my current assets and will likely be the largest part of any estate I leave behind.

And Mr. Slott provides fairly straight forward advice that can prove invaluable to my heirs. A simple misstep by my executor (which *cannot* be undone once it has occurred) could result in my heirs having to withdraw all funds from the inherited IRA and then being required to pay taxes on those funds rather than continuing to defer them for many more years. And in the case of a Roth IRA, having to withdraw the funds rather than having them grow tax-free for their lifetime.

So why so hard on Ed Slott?

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