Inheritance Plan to avoid taxes and provide for myself

Submitted by Odd_Wolverine_4133 t3_zzqdjb in personalfinance

Not my main reddit account. Kinda want to keep this separate.

I know there are plenty of threads about this topic this if I search but I'd really like some more timely advice that might take in to account new rules and so forth. I am about to inherit a large chunk of money- not over a million, but significant, especially for me.

My initial plan was to buy a condo free and clear and then invest the rest conservatively in a sort of income and dividend growth combo strategy. However the money is currently IN retirement accounts so I will be inheriting retirement accounts. I understand that I could just cash them out- but that I'd get a horrific tax bill if I did. I think I have 10 years to clear them out?

I'd like to figure out a strategy that minimizes taxes but still allows me to pursue my condo/income/divgrowth plan. I reckon spreading it out over 10 years in the best way to do that, I can max out my own IRAs with some of that I think and avoid taxes that way. I really want to avoid a mortgage, but maybe that's not possible.

Thoughts? Ideas? Pitfalls? Advice?

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Virel_360 t1_j2d38m2 wrote

You should probably consider speaking to a financial planner that deals with estate taxes etc. Fee only would be my recommendation. They could probably give you a much more accurate assessment of your options as they are up-to-date on all of the codes and regulations.

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1hotjava t1_j2dnwoc wrote

Generally taking the money out over 10yrs is the most efficient tax wise as it’s less likely to push you into higher brackets. You could play around with some tax software to see how much you can push it without going into another bracket.

Remember, our tax system is a progressive one, you only pay the higher percentage of a bracket on the amount that goes into that bracket, not your entire taxable income (hugely misunderstood fundamental of our tax system in the US)

If you are under the income limits for deductible IRA contributions, you can offset some of that income by contributing. Be careful not to go over the income limits if that is your plan.

Also, a couple years ago when mortgage rates were 2-2.5% I’d say get a mortgage but with current rates you should compare the cost of interest on say a 15yr loan to the taxes paid

Either way you need to get the IRA money out in 10yrs, so do some calcs to figure out the most tax efficient way. Sorry there isn’t a one-size-fits-all solution, we all have different tax situations.

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decaturbob t1_j2e0mml wrote

  • really no way to avoid taxes on any retirement savings that were funded with pre-tax dollars and reduce your load when you are older and at a smaller tax rate based on income level
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kveggie1 t1_j2d716f wrote

I would consider a fee-only fiduciary financial planner to review your plan and discuss holistically what you want/need and what is possible (budget, taxes, giving, etc.).

Yes, spend maybe 2k on this. It is your money and it is best for your interest.

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