Do you cut back on 401k/IRA saving if you expect to inherit millions?

[Anonymous]

Anonymous wrote:I feel like no one answering here is actually in a true position of inheriting real money. My parents are roughly 20M net worth and it will only grow as it is invested. They couldn’t spend down the principle if they tried. Of course, I am counting on inheriting a large amount in my due time, it would be foolish to plan otherwise. We save the minimum in retirement but otherwise aren’t worried about it in the slightest. We have other worries but money isn’t one of them. I know we will be just fine in retirement.

You should know, then, that it is “principal.”

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I feel like no one answering here is actually in a true position of inheriting real money. My parents are roughly 20M net worth and it will only grow as it is invested. They couldn’t spend down the principle if they tried. Of course, I am counting on inheriting a large amount in my due time, it would be foolish to plan otherwise. We save the minimum in retirement but otherwise aren’t worried about it in the slightest. We have other worries but money isn’t one of them. I know we will be just fine in retirement.

I feel like people with real money give their kids money while they're alive. I'm skeptical of money that's supposedly there but won't be mine until they pass: it may not actually be there, it may not be liquid, it may get spent on medical bills or a bad lawsuit, or they may live well into my retirement. My dad is in his 70s taking care of his mom on her 90s: if he inherits anything (unlikely, since she remarried) he'll be too old for it to have mattered to his retirement.

+1 If you haven't already been receiving the money, then don't count on it.

It’s safe to assume people in the PP’s position are already maxing out the annual exemption and have an eye on 2026, as well as a solid estate plan. It’s likely they also pay any and all tuition for the children and grandchildren. There are probably other gifts and distributions as well.

No, it's not safe to assume that. OP didn't mention that at all, just an expectation to eventually inherit some money. That's what making some of us posters wary of counting on it.

[Anonymous]

YOu should never count on an inheritance until its actually yours. My husband and his siblings have been counting on inheriting a very valuable commercial property from their grandmother (its probably worth $8 million presently). She left it to their mother and her two siblings, and the two siblings weren't married and didn't have any kids. Well lo and behold, one of the siblings ended up getting married, and the other had a baby when he was 65 and married the mother! They claim they will still leave the property to my husband and his siblings, but I think its very unlikely this will happen.

I expect they will get something but it there could easily be a big fight over it in the future.

[Anonymous]

My parents (divorced) probably have about 3m assets each. They used to tell me not to worry, they were going to make sure my kids had college etc paid does well, My mom has early stages dementia and her care is currently 10k/month and will only go up from there once she needs f/t memory care. She is physically very healthy . My father married a significantly younger and healthier woman who insisted on commingling nearly all his assets with hers in the form of four jointly owned houses (i think it was a strategy ; they don’t rent them out or anything). The houses are in a joint trust that goes to whoever survives. We are fine for now but don’t make high incomes and I worry we don’t have enough in retirement and we took in too much debt with this house (spouse pushed it on me heavily) to handle a big loss (job, health m, etc).

[Anonymous]

Anonymous wrote:I feel like no one answering here is actually in a true position of inheriting real money. My parents are roughly 20M net worth and it will only grow as it is invested. They couldn’t spend down the principle if they tried. Of course, I am counting on inheriting a large amount in my due time, it would be foolish to plan otherwise. We save the minimum in retirement but otherwise aren’t worried about it in the slightest. We have other worries but money isn’t one of them. I know we will be just fine in retirement.

One big part of estate planning is transferring while they’re still alive. The federal lifetime gift exemption is about $11 million dollars per spouse. Once they reach that point they are allowed to give up to $17,000 per person per spouse.

It makes no sense that your parents wouldn’t creative irrevocable trusts for the grandchildren and cash gifts to their children and in-laws. They will pay an estate tax if they don’t do some serious planning. If they have $20 million in assets and they both die they will pay between 30 - 40% tax on $8 million dollars. The first $12 million are exempt from estate tax. I’m rounding numbers.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Nope. You don't know what can happen.

THIS!!! My cousins (my parents' generation) had well over $20M decades ago. Their three children all expected to inherit it. Then their dad died and their mom got a new boyfriend. She cut off her kids and is leaving the money to him. Completely unexpected and my cousins (the three grown kids) had all based their lives around getting this money.

Your parents could also lose the investments, have long-term elder care needs that can zap through a big chunk, or anything else that could change a person's fortune.

Their father could have prevented that with careful planning. That’s too bad.

[Anonymous]

We max out on Roth and only contribute to 401k to bring down our AGI to qualify for the qualified business income deduction. We are 43 and 37 and have low 7 figures in our 401k so want to avoid high RMDs in the future.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Nope. You don't know what can happen.

THIS!!! My cousins (my parents' generation) had well over $20M decades ago. Their three children all expected to inherit it. Then their dad died and their mom got a new boyfriend. She cut off her kids and is leaving the money to him. Completely unexpected and my cousins (the three grown kids) had all based their lives around getting this money.

Your parents could also lose the investments, have long-term elder care needs that can zap through a big chunk, or anything else that could change a person's fortune.

Their father could have prevented that with careful planning. That’s too bad.

True. The irony is that their dad's dad was a lawyer and schemed to force a deathbed change to a childless relative's will. The new will left everything to lawyer and his family instead of splitting it across all the nieces and nephews (the original will included my dad). That's where all the money came from. This obviously created family rifts. After all that, the scheming lawyer relative didn't take some simple steps to ensure it stayed in the family. The money went to scheming lawyer's son's wife who is now giving it to new boyfriend. The BF has already extracted a lot of it from her. So the fortune is going out of the family. Scheming lawyer's son and his 3 grown children never amounted to anything professionally. They all just sat around waiting to inherit and spent every dime they were ever given on a lifestyle they couldn't support on their own. Now so many relationships are destroyed. The money has been more of a curse than anything.

I'm almost glad that my dad got cut out with this deathbed coerced will. My siblings and I all did well professionally and are self sufficient. I feel bad for my 3 cousins who are my generation, but they're also very bitter about the money and not nice people to be around.

[Anonymous]

Anonymous wrote:YOu should never count on an inheritance until its actually yours. My husband and his siblings have been counting on inheriting a very valuable commercial property from their grandmother (its probably worth $8 million presently). She left it to their mother and her two siblings, and the two siblings weren't married and didn't have any kids. Well lo and behold, one of the siblings ended up getting married, and the other had a baby when he was 65 and married the mother! They claim they will still leave the property to my husband and his siblings, but I think its very unlikely this will happen.

I expect they will get something but it there could easily be a big fight over it in the future.

Wow, that was crazy presumptiuous of your husband and his siblings to assume they would inherit rather than the mother’s siblings. Of course the grandma would leave it to her three kids, not one kid and those grandkids.

Your husband and siblings should get whatever is left when their mom dies. They should not feel remotely entitled to the other two thirds.

[Anonymous]

We don't. While I could inherit $5m-$10m, I do not count on it. We max out our 401(k), including catch-up contributions for DH.

[Anonymous]

Anonymous wrote:I feel like no one answering here is actually in a true position of inheriting real money. My parents are roughly 20M net worth and it will only grow as it is invested. They couldn’t spend down the principle if they tried. Of course, I am counting on inheriting a large amount in my due time, it would be foolish to plan otherwise. We save the minimum in retirement but otherwise aren’t worried about it in the slightest. We have other worries but money isn’t one of them. I know we will be just fine in retirement.

I feel like this would be my plan as well.

[Anonymous]

Anonymous wrote:If you can reasonably expect to inherit a sizable amount by your normal retirement age, and you’ve already accumulated “enough” in your tax advantaged retirement accounts, would it make sense to cut back on the aggressive 401k saving and enjoy the money while you’re young instead? Say you have 1M in your 401k at 40, and will probably get 3–5M when your parents are gone. Maybe only contribute up to the 401k match instead of max it out? I don’t want to live a life of deprivation when I’m young and able bodied only to come in to a fortune when I’m too old to enjoy it.

I have a trust worth over $3M now (with 7% returns over the next 30 years it will be worth $23M) but my husband and I are still maxing out our 401Ks and contributing $50K annually to a separate investment account in addition to putting $15K annually into each child’s 529. Our goal is to increase the amount we put into the brokerage account every 5 years ($50K for the next 5 years then $100K for 5 years and so forth). We do not spend extravagantly on anything but are very comfortable. Our salaries have increased a lot in the last two years but our lifestyle has not. We may save less than we could later on but I wouldn’t feel comfortable making a decision like that until we were in our 50s or 60s. We are in our 30s and we both plan to work until mid to late 60s.

[Anonymous]

Anonymous wrote:I’m not rich, don’t expect to inherit from rich relatives, and have no financial expertise, so consider this opinion in light of all that.

I think that until you actually inherit the money, you shouldn’t count on it. They might change their will. They might lose it in bad investments. They might need the money or decide they want to enjoy it while they’re able. It seems to me that if they wanted you to be able to count on getting money, they would have established a trust. Short of that, it’s theirs to dispose of as they wish, and there’s no guarantee that will include you.

+1

[Anonymous]

There is a pretty simple answer:

(A) is there an irrevocable trust with your name on it? If no, don’t count on inheriting anything. If yes, see (B).

(B) is the trust worth in excess of $15 million? If no, don’t count on inheriting anything. If yes, you can afford to cut back on saving.

People focusing on their parents’ net worth are missing the point. Will and revocable trusts can be changed. Until the money is actually legally yours, it can go anywhere.

[Anonymous]

Anonymous wrote:If you can reasonably expect to inherit a sizable amount by your normal retirement age, and you’ve already accumulated “enough” in your tax advantaged retirement accounts, would it make sense to cut back on the aggressive 401k saving and enjoy the money while you’re young instead? Say you have 1M in your 401k at 40, and will probably get 3–5M when your parents are gone. Maybe only contribute up to the 401k match instead of max it out? I don’t want to live a life of deprivation when I’m young and able bodied only to come in to a fortune when I’m too old to enjoy it.

If you have $1 million in your 401k at 40, is the $22,500 a year you're putting into it really the difference between living a life of deprivation or not?

I'm a bit older than you and have more money saved, and am likely to inherit at least the top end of your range, but I'm still maxing out my tax-advantaged savings because (as plenty of people have noted) you never know what you'll actually inherit, and the tax shelter is useful.

I don't think you'd actually get much extra joy out of cutting back your savings now, anyway. Let's say you're contemplating cutting contributions back from $22,500 to about 6 percent of your salary. We'll assume for purposes of argument here that you're making $200,000, so you're cutting back from $22,500 to $12,000. That's $10,000 a year, about $833 a month — a lot! Though probably not the difference between deprivation and luxury. But then you've got to pay taxes on that. FICA alone takes out $765, and then let's be conservative and say your net federal and state taxes are another 8 percent (which is probably low), so that's another $800. Which leaves you with $8,500 a year that you were saving but no longer are.

Worth the risk that you might not get the inheritance, in the end?