If you are keeping an inheritance separate from marital funds, how do you handle inherited IRA

[Anonymous]

Anonymous wrote:

Anonymous wrote:I inherited a lot of money in IRAs but it was before the new law so I only take RMDs every year. Additionally, I have a trust I have to take additional required distributions from annually. Here is what I/we do:

- all distributions are kept separate and go into my own accounts in my own name

- I pay the portion of the taxes attributable to these separate distributions from my separate property.

Have you verified this approach with a lawyer to make sure your spouse can't come after you for those accounts at a later date? Seems to me that you will need to keep detailed accounting and records of all transactions related to those accounts..

I am an attorney.

[Anonymous]

I haven't read all the replies, but will add this: as the spouse who didn't get a large trust fund and does not benefit at all from my husband's, I was furious when I found out he was paying the taxes he owed on his trust fund from our shared account--to which I was contributing more from my salary, while he wasn't even working. You wealth-inheriting spouses who don't share the wealth are the worst. You don't sound like a great spouse, honestly.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Why "thanks Trump"? This money has never been taxed, it's always the law that pre-tax funds get taxed when withdrawn, has nothing to do with who is president.

The SECURE Act of 2019 put a ten year time limit on withdrawing from inherited IRAs. Before that law, you could stretch the withdrawals out more. This hurts people who inherit money when they are younger and are still working.

Meh, it prevents the money from remaining untaxed for decades. If op had her way, she’d just pass it on to her own kids as an inheritance some forty-odd years from now. I inherited an IRA from my father and I think 10 years is plenty of time to distribute the funds.

Not “meh”
Ad usual Trump sucks at finances maga cult of can not do math

Sorry, not a ton of sympathy. An IRA is intended as a vehicle for retirement savings, not passing down an inheritance with untaxed money.

Exactly. Oh boo hoo you only get...$2 million.

Right? The money has to be taxed somewhere, somehow. Exactly how long should the taxes be deferred? OP sounds awful

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Why "thanks Trump"? This money has never been taxed, it's always the law that pre-tax funds get taxed when withdrawn, has nothing to do with who is president.

The SECURE Act of 2019 put a ten year time limit on withdrawing from inherited IRAs. Before that law, you could stretch the withdrawals out more. This hurts people who inherit money when they are younger and are still working.

Meh, it prevents the money from remaining untaxed for decades. If op had her way, she’d just pass it on to her own kids as an inheritance some forty-odd years from now. I inherited an IRA from my father and I think 10 years is plenty of time to distribute the funds.

No if I had my way I could at least wait until 65 to take the money out instead of being punished for the fact that I happened to inherit money in my peak early years vs when I was approaching retirement. I make a lot more than my parents ever did so this money is being taxed at a much higher rate than if my parents hadn’t put it in a 401K.

IRAs were never meant to be for generational wealth transfer. The old way money could be passed for generations and never taxed. I am sorry it's not optimal for you but I think it's a good policy. Remember you only pay the higher rates on part of your income.

So why not blame them instead of Trump? It's never been wise to put too much into IRAs--they are not tax-free, they are tax-deferred. Do you think that money should never be taxed? And you do you even understand how taxes work?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Why "thanks Trump"? This money has never been taxed, it's always the law that pre-tax funds get taxed when withdrawn, has nothing to do with who is president.

The SECURE Act of 2019 put a ten year time limit on withdrawing from inherited IRAs. Before that law, you could stretch the withdrawals out more. This hurts people who inherit money when they are younger and are still working.

Meh, it prevents the money from remaining untaxed for decades. If op had her way, she’d just pass it on to her own kids as an inheritance some forty-odd years from now. I inherited an IRA from my father and I think 10 years is plenty of time to distribute the funds.

No if I had my way I could at least wait until 65 to take the money out instead of being punished for the fact that I happened to inherit money in my peak early years vs when I was approaching retirement. I make a lot more than my parents ever did so this money is being taxed at a much higher rate than if my parents hadn’t put it in a 401K.

IRAs were never meant to be for generational wealth transfer. The old way money could be passed for generations and never taxed. I am sorry it's not optimal for you but I think it's a good policy. Remember you only pay the higher rates on part of your income.

So why not blame them instead of Trump? It's never been wise to put too much into IRAs--they are not tax-free, they are tax-deferred. Do you think that money should never be taxed? And you do you even understand how taxes work?

Op here. I understand taxes. What I thought was unfair was that my parents saved in their 401K under rules that allowed withdrawals from an Inherited IRA to be spread out. And then just before they unexpectedly died the rules governing the money they already saved was changed. There was not enough time for them to adjust. Obviously I am adjusting my savings strategy based on the new rules but that is because I was in my 30s when the law changed. My parents were not rich, they never took vacations, they bought used cars and drove them until they had 200,000 miles on them. they saved and invested and now because of a change in the law that money they saved is being taxed based on a level of income that is 4x what they ever earned.

But regardless I was asking for advice about how to handle the taxes on the larger withdrawals while filing taxes with my husband and got some good advice on that so thanks to the PPs who responded to my original question.

[Anonymous]

Anonymous wrote:I inherited about 3 million in a IRA and now have 10 years to withdraw it all and pay income taxes (thanks Trump). I am in the highest tax bracket and am only 40 so will be working (and hopefully continue with my current income) the entire time I am withdrawing the money. I have always heard people should keep inheritances separate from other savings in the case of divorce and am trying to do so - but how do people handle taxes in this case? My husband and I file taxes jointly and will owe more taxes because of these withdrawals - do I just try to pay those taxes quarterly directly from the inheritance accounts? I don't need the money and am trying to just preserve as much as possible for my kids. I would also like to have this money go directly into a trust for my kids if I die - so that is another reason to keep the money separate.

And please no commentary on how lucky I am - I would rather have my parents be alive.

Donate the money to charity that honors your parents. Keeps it away from your grubby husband and no taxes. Problem solved.

Why on earth do you think you kids need that $3M? You're already stinking rich on your own.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Why "thanks Trump"? This money has never been taxed, it's always the law that pre-tax funds get taxed when withdrawn, has nothing to do with who is president.

The SECURE Act of 2019 put a ten year time limit on withdrawing from inherited IRAs. Before that law, you could stretch the withdrawals out more. This hurts people who inherit money when they are younger and are still working.

Meh, it prevents the money from remaining untaxed for decades. If op had her way, she’d just pass it on to her own kids as an inheritance some forty-odd years from now. I inherited an IRA from my father and I think 10 years is plenty of time to distribute the funds.

No if I had my way I could at least wait until 65 to take the money out instead of being punished for the fact that I happened to inherit money in my peak early years vs when I was approaching retirement. I make a lot more than my parents ever did so this money is being taxed at a much higher rate than if my parents hadn’t put it in a 401K.

IRAs were never meant to be for generational wealth transfer. The old way money could be passed for generations and never taxed. I am sorry it's not optimal for you but I think it's a good policy. Remember you only pay the higher rates on part of your income.

So why not blame them instead of Trump? It's never been wise to put too much into IRAs--they are not tax-free, they are tax-deferred. Do you think that money should never be taxed? And you do you even understand how taxes work?

Op here. I understand taxes. What I thought was unfair was that my parents saved in their 401K under rules that allowed withdrawals from an Inherited IRA to be spread out. And then just before they unexpectedly died the rules governing the money they already saved was changed. There was not enough time for them to adjust. Obviously I am adjusting my savings strategy based on the new rules but that is because I was in my 30s when the law changed. My parents were not rich, they never took vacations, they bought used cars and drove them until they had 200,000 miles on them. they saved and invested and now because of a change in the law that money they saved is being taxed based on a level of income that is 4x what they ever earned.

But regardless I was asking for advice about how to handle the taxes on the larger withdrawals while filing taxes with my husband and got some good advice on that so thanks to the PPs who responded to my original question.

So unfair! You poor, poor multimillionaire!

Your parents didn't spend the money and didn't give it away before they died. They literally can't care what happens to it now. It seems they knew how to live well without it. You can live well with half of it.

[Anonymous]

Anonymous wrote:I haven't read all the replies, but will add this: as the spouse who didn't get a large trust fund and does not benefit at all from my husband's, I was furious when I found out he was paying the taxes he owed on his trust fund from our shared account--to which I was contributing more from my salary, while he wasn't even working. You wealth-inheriting spouses who don't share the wealth are the worst. You don't sound like a great spouse, honestly.

Bro that's not "not sharing". That's stealing.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Why "thanks Trump"? This money has never been taxed, it's always the law that pre-tax funds get taxed when withdrawn, has nothing to do with who is president.

The SECURE Act of 2019 put a ten year time limit on withdrawing from inherited IRAs. Before that law, you could stretch the withdrawals out more. This hurts people who inherit money when they are younger and are still working.

Meh, it prevents the money from remaining untaxed for decades. If op had her way, she’d just pass it on to her own kids as an inheritance some forty-odd years from now. I inherited an IRA from my father and I think 10 years is plenty of time to distribute the funds.

Not “meh”
Ad usual Trump sucks at finances maga cult of can not do math

Sorry, not a ton of sympathy. An IRA is intended as a vehicle for retirement savings, not passing down an inheritance with untaxed money.

Exactly. Oh boo hoo you only get...$2 million.

Right? The money has to be taxed somewhere, somehow. Exactly how long should the taxes be deferred? OP sounds awful

The taxes should be deferred until some descendant stops earning over $400K a year, which OP intends to be never.

[Anonymous]

Anonymous wrote:I haven't read all the replies, but will add this: as the spouse who didn't get a large trust fund and does not benefit at all from my husband's, I was furious when I found out he was paying the taxes he owed on his trust fund from our shared account--to which I was contributing more from my salary, while he wasn't even working. You wealth-inheriting spouses who don't share the wealth are the worst. You don't sound like a great spouse, honestly.

Op here. This is what I am trying to avoid

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I inherited a lot of money in IRAs but it was before the new law so I only take RMDs every year. Additionally, I have a trust I have to take additional required distributions from annually. Here is what I/we do:

- all distributions are kept separate and go into my own accounts in my own name

- I pay the portion of the taxes attributable to these separate distributions from my separate property.

Have you verified this approach with a lawyer to make sure your spouse can't come after you for those accounts at a later date? Seems to me that you will need to keep detailed accounting and records of all transactions related to those accounts..

I am an attorney.

Thanks for the response.. So, is this something your spouse has to agree with or is it automatic (in Virginia)? Say I have pre-marriage accounts (Brokerage, Roth IRA and 401K). Can I "freeze" them (at least the Brokerage and Roth) as of the day/week before the wedding and create new accounts for future money and they will automatically be considered "out of bounds"? How about the 401K? Just an account statement?

[Anonymous]

Anonymous wrote:I haven't read all the replies, but will add this: as the spouse who didn't get a large trust fund and does not benefit at all from my husband's, I was furious when I found out he was paying the taxes he owed on his trust fund from our shared account--to which I was contributing more from my salary, while he wasn't even working. You wealth-inheriting spouses who don't share the wealth are the worst. You don't sound like a great spouse, honestly.

My DH also inherited about $3M in trusts in an IRA. He takes the distribution he needs to and dumps into a brokerage account in his name only after taking out enough for taxes into our joint account. I don’t really think about it all. We treat it as “our” money that he gets the final word on. To my knowledge, he hasn’t used any of those funds so far but he has said that he intends to use for grad school, weddings and down payment on a first house for our children.

It makes total sense to me that in the event that we divorce, he gets to keep the money and spend how he wishes. I hope on our kids but that will be his choice. I think that is what his parents intended and I think he will try to do what they would want.

My kids are extremely fortunate as their 529s are fully funded already and so all this is “extra”.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I inherited a lot of money in IRAs but it was before the new law so I only take RMDs every year. Additionally, I have a trust I have to take additional required distributions from annually. Here is what I/we do:

- all distributions are kept separate and go into my own accounts in my own name

- I pay the portion of the taxes attributable to these separate distributions from my separate property.

Have you verified this approach with a lawyer to make sure your spouse can't come after you for those accounts at a later date? Seems to me that you will need to keep detailed accounting and records of all transactions related to those accounts..

I am an attorney.

Thanks for the response.. So, is this something your spouse has to agree with or is it automatic (in Virginia)? Say I have pre-marriage accounts (Brokerage, Roth IRA and 401K). Can I "freeze" them (at least the Brokerage and Roth) as of the day/week before the wedding and create new accounts for future money and they will automatically be considered "out of bounds"? How about the 401K? Just an account statement?

Have you considered a pre-nump?

From google -- In a divorce, pre-marital assets, like bank accounts or investments owned before marriage, generally remain the sole property of the individual who owned them, as long as they were kept separate. However, if these assets increase in value during the marriage, that increase might be considered marital property and subject to division. To protect pre-marital assets, it's crucial to keep them separate and avoid commingling them with marital funds.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I inherited a lot of money in IRAs but it was before the new law so I only take RMDs every year. Additionally, I have a trust I have to take additional required distributions from annually. Here is what I/we do:

- all distributions are kept separate and go into my own accounts in my own name

- I pay the portion of the taxes attributable to these separate distributions from my separate property.

Have you verified this approach with a lawyer to make sure your spouse can't come after you for those accounts at a later date? Seems to me that you will need to keep detailed accounting and records of all transactions related to those accounts..

I am an attorney.

Thanks for the response.. So, is this something your spouse has to agree with or is it automatic (in Virginia)? Say I have pre-marriage accounts (Brokerage, Roth IRA and 401K). Can I "freeze" them (at least the Brokerage and Roth) as of the day/week before the wedding and create new accounts for future money and they will automatically be considered "out of bounds"? How about the 401K? Just an account statement?

Have you considered a pre-nump?

From google -- In a divorce, pre-marital assets, like bank accounts or investments owned before marriage, generally remain the sole property of the individual who owned them, as long as they were kept separate. However, if these assets increase in value during the marriage, that increase might be considered marital property and subject to division. To protect pre-marital assets, it's crucial to keep them separate and avoid commingling them with marital funds.

Way past that..nor am I considering divorce. This is just for my knowledge, and potentially what I could advice my kids. Also, a pre-nup has that "I don't trust you vibe" which I'd personally avoid, but of course if that's the only option..

[Anonymous]

Anonymous wrote:As long as the money goes into an account in your name it’s not commingled. You just pay the taxes on it as income filing jointly - that doesn’t make it a joint asset.

You probably will have to pay taxes quarterly though, or check with the broker holding the account about having them withhold enough given your family income. Don’t forget state taxes too, if those apply.

You may want to consult with a tax accountant and get some assistance.

This is not fair to her husband he shouldn’t have to pay taxes on it since he doesn’t get or benefit from the money.

OP, keep it separate and contribute from the separate account the difference in the taxes it causes.