Estate taxes on RIRAs
Say there are estate taxes on people dying in 2013 forward, that are taxed on the amount over one million. Is there an advantage to having the estate mostly in RIRAS to past to the children? The husband and wife separately have over one million in ther estates. The question is : Are estate taxes paid on Roth IRAS that are worth over one million? Neither spouse will inherit each others RIRAs.
Permalink Submitted by Bruce Steiner on Fri, 2012-07-27 21:14
There are lots of tax benefits to Roth IRAs, assuming that the income tax on the conversion is less than, the same as, or not “too much” higher than the income tax that would otherwise be payable on the distributions.
In the case of a traditional IRA, the recipients get an income tax deduction under Section 691(c) for the Federal estate tax on the IRA, at marginal rates. That puts them in approximately the same position as if the income tax had been payable first, and only the balance after income taxes were subject to estate tax. However, the Section 691(c) deduction only applies to the Federal estate tax, not to state estate or inheritance taxes. So, everything else being equal, there is a benefit to the Roth conversion for IRA owners in states having a state estate or inheritance tax.