Large IRA PLanning Options

Submitted by Ed Farmer on Fri, 2015-02-13 04:25

We have a client who is 70.5 this year, is married & they have one child. His IRA value is $5M, his RMD this year is $185k. 28% tax bracket without the RMD. They do not need the income from the RMD. they are open to planning ideas of what they could do to reduce tax consequences for pulling down the IRA value. We know we could use stretch planning, but they believe that is potentially creating a huge problem for some one in the future.

We are exploring the QCD to be paid from the IRA, but what we see it has not been approved for 2015 yet.

Can he use a CRT to take a tax deduction to count against the tax owed on withdrawals? what other options could we suggest? What other sources are available for planning ideas?

Thank you for your help, Ed.



Submitted by Bruce Steiner on Sun, 2015-02-15 01:43

He might consider a Roth conversion, either all at once or over a number of years.  See my article on this subject in the April 2013 issue of Trusts & Estates:  http://76.12.66.190/library_cat/uf_Roth_Conversions_Are_More_Attractive_Under_ATRA.pdf.



Submitted by [email protected] on Wed, 2015-02-18 23:13

Are the heirs in similar or higher tax bracket?  What’s his ultimate goal with the money?  He doesn’t need income, but is he willing to give the money away?  I don’t think a CRT will give dollar for dollar decduction against taxable income, but could help.  Conversions can be optimized while he’s alive, but if he predeceases his spouse and she’s primary, she’ll possibly go into a higher tax bracket anyway.  If kid is in lower bracket, maybe best to let them inherit it and pay lower taxes on their RMDs.  Could use distributions to pay premium on life policy on himself so that if he dies first, she could use the proceeds to pay taxes on converting the remainder.  Could also consider annuitizing a portion to generate a taxable income that could be used to fund a 2nd to die policy.  Lots of options to consdier based on what they want to accomplish….



Submitted by Bruce Steiner on Thu, 2015-02-19 03:20

  • A charitable remainder trust won’t accomplish much.  The principal use of a charitable remainder trust is to enable someone to sell an appreciated asset and diversify while spreading out the capital gains tax.  A stretch is available for the IRA without the need for a CRT, so there’s rarely any reason to incur a CRT’s loss of flexibility for IRA benefits.
  • Life insurance only helps if the insured dies substantially before life expectancy.  
  • In addition to the transaction costs, an annuity results in speeding up distributions.
  • Buying both life insurance and an annuity is like betting on both teams in the same game.

 



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