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  • Scheming on Roth

    I had an idea on a way for me to have more space in Roth and wanted to see if anyone has a reason it wouldn't work.

     

    My dad is still working at age 70, but only contributes to his 403b.  He has a traditional IRA for him and my mom, but no Roth.    Their modified agi is less than the Roth limit.  My thought is to gift $6500 to my mom and $6500 to my dad and have them each start a Roth with me as the beneficiary.  I'd also have them waive the spousal transfer in the case of either of their deaths.  Also considering the same thing with my in laws as my mother in law still works at 65.  All in, that could be $37k (13+13+11) in Roth if I backdoor for my wife and I, as well as contribute for both of my parents and my wife's parents.

    RMD wouldn't be an issue, gift laws are being followed.  Roth conversions by my dad could be done into a different Roth account which could be started if desired.  Trust is not a concern.  Am I missing anything????

  • #2
    This should be fine as long as your father's income is greater than the combined Roth and 403b contributions. Also need to confirm he no longer contributes to any IRA.

    A few things to keep in mind:

    1. You write that "trust is not a concern" but remember you have legally gifted them the money so it is legally their money.

    2. You can only do this while your father and mother in law are working so this you may only be able to do this for a few years

    3. If you explain the concept of the the IRA to them, they may realize they should be making their own contributions to an IRA (Roth or traditional) and use the deduction themselves.

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    • #3
      I thought about this too for my mom but then decided against it since it's not really mine.

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      • #4
        It's not perfect; inherited Roth IRAs still have RMDs and can't be rolled over.  It's still tax-free money, though.  You can always just invest your RMD into taxable each year.

        ...should we call this the back-pearly-gates Roth?  Coffin Roth?

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        • #5




          It’s not perfect; inherited Roth IRAs still have RMDs and can’t be rolled over.  It’s still tax-free money, though.  You can always just invest your RMD into taxable each year.

          …should we call this the back-pearly-gates Roth?  Coffin Roth?
          Click to expand...


          are you sure you need to have it put into a roth?  you can inherit on a step up basis.  if they just invest the money, you can have the capital gains and dividends taxed at their lower rates and then inherit it back.  the actual stocks transfer step up.  or put it into mutual funds and inherit step up.  yes you will have to pay taxes on it going forward but it might be a simpler option which you can put more money into.

          if you inherit a roth, you will have RMDs as noted above based on your age.

          i'm not sure exactly what the goals are.

           

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          • #6
            There are a few important unknowns here (to both you and all of us).  When will they retire?  Will their estate get taxed at the federal and/or state level?  When will they die and pass this on to you?  And another important one (this was brought up on a previous thread regarding a similar strategy), are you really going to be comfortable having this conversation with your parents and in-laws where you are scheming about how to use their working years and inability to save more fully for their own retirements in order to profit from their demise?  If my parents brought this plan up to me, I knew 100% that their estate wasn't going to be taxed on their death, they couldn't afford the marginal IRA contribution, didn't need that marginal contribution, and that I knew 100% that they would die strategically for my retirement benefit then maybe - maybe - I'd feel comfortable with this.  But those things are not known, and I prefer to have zero benefit tied into my parents' eventual passing.  Having a silver lining to that event just feels wrong.

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            • #7
              Do either of you have siblings? If so, things could get really messy after the parents pass.

              Also, people have been known to remarry after the death of a spouse and leave everything for the new spouse.


              If you explain the concept of the the IRA to them, they may realize they should be making their own contributions to an IRA (Roth or traditional) and use the deduction themselves.
              Click to expand...


              You cannot contribute to a TIRA beyond age 70.5, but you can to a Roth.
              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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              • #8
                My parents and in laws are set for retirement. They have no need or desire to make retirement contributions beyond what they are already doing. My benefit is greatest the longer they live. I don't see this as a silver lining when they die, rather a good investment idea while they are alive. Plenty of people receive an inheritance at their parents passing. I don't see how this is different.

                I think both will be retired in 5-6 years.

                The accounts would have to have me as the beneficiary when they are set up. I would also discuss it with my brothers, as they might want to get in on it too, which would of course be totally great and prevent the messiness that could arise.

                Giving them money to invest in a taxable account is limited by the gift laws. Roth makes more sense to avoid all taxes.

                Neither of their estates will be taxed, barring a lottery win or record breaking roll at the craps table.

                Thanks for all the input. Lots of things to think about.



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