jerseygirl
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Post by jerseygirl on Sept 18, 2020 14:36:45 GMT -5
Is a back door Roth a possibility? Yes, but I would be paying 24% tax on it for last year. Next year, it’ll be 32%, possibly 35%. Well congrats on the income that will have that high tax
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Post by The Walk of the Penguin Mich on Sept 18, 2020 14:37:53 GMT -5
You aren't talking about a Roth, are you? Because I'm confused. There are no taxes on Roths other than ordinary income tax as you earn the money. Roths are after-tax. You would be giving up your own ability to save for retirement since this would count against your ability to contribute. I don't think you can transfer a Roth except by dying. You would have to cash it in and hand them a lump sum. So it is no longer a Roth. Is this a backdoor Roth? I am unfamiliar with them so maybe the rules are different. No, I was not specifically thinking about a Roth. But, my comments could apply to a Roth as well as a variety of other types of accounts. I do understand that contributions to a Roth account are subject to federal income tax and that withdrawals, at least at this point, are exempt from federal income taxes. While a Roth may be the ideal vehicle for the poster to use, the poster’s primary objective is providing a retirement nest egg, not tax avoidance. So, non-Roth accounts could be an option for the poster.I believe you are right, that you can’t transfer a Roth to another person while you are living. However, you could make tax free withdrawals from a Roth account that is in your name and gift the amount of the withdrawal to whoever you want. Handled properly, such a gift could be tax free. Either under the annual gift tax exclusion, if the gift meets the annual limitation on gifts. Or, if the gift exceeds the annual gift tax exclusion limit, under the lifetime exclusion for gifts and estates, which for a couple is currently in excess of $11 million. Actually, it is to provide additional tax avoidance for ME! If I give my brother $7000 to set up an IRA, if he set up a traditional he could take the $7000 tax deduction on his taxes. If he sets up a Roth, he’ll get a saver’s credit. But my point is that I want to invest for my brother and NOT have tax repercussions come back on me. The reason why I prefer to do this and not let him know now is that he can’t seem to save a dime. It kicks the can down the road a bit for me, but I think ultimately I will be needing to help him out as it is. This is merely one way I could possibly do it. If I put this in an investment account to give him money later, I’ll be paying taxes on this for my initial contribution (since it is taxed money) AND on the money it earns. I can avoid the second set of taxes if I set up a Roth in his name.
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mollyanna58
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Post by mollyanna58 on Sept 18, 2020 14:51:53 GMT -5
Maybe an annuity in his name? Using your address. I don't know about the tax repercussions, but there wouldn't be a tax form issued until he starts to collect, I think.
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Post by The Walk of the Penguin Mich on Sept 18, 2020 14:59:43 GMT -5
Yes, but I would be paying 24% tax on it for last year. Next year, it’ll be 32%, possibly 35%. Well congrats on the income that will have that high tax Unfortunately, most of it was courtesy of a tax sale at the beginning of the year when we moved to a stronger cash position, right before the market dropped. Then TD lost his job, then got it back and more. We were trying to anticipate what would happen if the market dropped (which it did) and he lost his job (which he did, but only briefly....he was going to retire if the job went and this would have covered our expenses plus COBRA for the year). Had the crap that happened had not reversed, we would have been ok, but not like this.
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jerseygirl
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Post by jerseygirl on Sept 18, 2020 15:38:59 GMT -5
Well congrats on the income that will have that high tax Unfortunately, most of it was courtesy of a tax sale at the beginning of the year when we moved to a stronger cash position, right before the market dropped. Then TD lost his job, then got it back and more. We were trying to anticipate what would happen if the market dropped (which it did) and he lost his job (which he did, but only briefly....he was going to retire if the job went and this would have covered our expenses plus COBRA for the year). Had the crap that happened had not reversed, we would have been ok, but not like this. I had a really good year once from some stock options in a biotech that was sold to an Irish company (lower corporate taxes in Ireland). Was able to avoid the increased IRMAA by showing SS office that I had a. ‘life changing event’, lost my job and income dramatically decreased, gave an anticipated income for the next year
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Post by The Walk of the Penguin Mich on Sept 18, 2020 16:46:56 GMT -5
Well, damn.....Fidelity shut this down, but TBH I don’t know if the guy I spoke to knew what I was talking about. We have a tax guy on retainer, I’m going to see if I can’t get another opinion.
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tskeeter
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Post by tskeeter on Sept 18, 2020 18:04:59 GMT -5
Is a back door Roth a possibility? Yes, but I would be paying 24% tax on it for last year. Next year, it’ll be 32%, possibly 35%. If you were to decide not to fund a retirement account for your brother, wouldn’t you end up paying the same taxes as you would if you were to fund an account? I’m all for avoiding taxes if I can. But, given your circumstances, it doesn’t sound like tax avoidance for you is a possibility. If you can’t create a benefit for yourself, does that change your thoughts about trying to provide for your brother in retirement?
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Post by The Walk of the Penguin Mich on Sept 18, 2020 19:19:50 GMT -5
Yes, but I would be paying 24% tax on it for last year. Next year, it’ll be 32%, possibly 35%. If you were to decide not to fund a retirement account for your brother, wouldn’t you end up paying the same taxes as you would if you were to fund an account? I’m all for avoiding taxes if I can. But, given your circumstances, it doesn’t sound like tax avoidance for you is a possibility. If you can’t create a benefit for yourself, does that change your thoughts about trying to provide for your brother in retirement? If I could fund a Roth IRA for my brother, I would pay my tax rate on my contributions to it. However, the money would grow and ultimately those investments have no additional taxes for either of us. At this point, my retirement isn’t at issue. I am well set.
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Deleted
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Post by Deleted on Sept 19, 2020 15:36:22 GMT -5
Can you buy savings bonds in his name and hold them?
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Post by The Walk of the Penguin Mich on Sept 19, 2020 17:45:19 GMT -5
Can you buy savings bonds in his name and hold them? Lousy interest rate. Taxes are still due on the earnings.
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Clifford
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Post by Clifford on Sept 19, 2020 19:39:25 GMT -5
Dunno about a secret or pre-tax (for you) IRA for your brother, but here’s where my mind went: Giving cash would trigger your tax rate, but transferring shares of stock to your sib might be a way avoid paying those taxes. He would have to pay capital gains based on the basis when you bought them, but only when he cashed them. You would pay no taxes on the transfer, and could give up to the gift tax limit of 15/30k per year for single/married. These could effectively be shares that you bought when you were in a lower bracket.
If you don’t want him to touch it before his retirement age, you might be able to set up a trust with him as a beneficiary and write in rules for withdrawal.
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Deleted
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Post by Deleted on Sept 20, 2020 7:26:30 GMT -5
Dunno about a secret or pre-tax (for you) IRA for your brother, but here’s where my mind went: Giving cash would trigger your tax rate, but transferring shares of stock to your sib might be a way avoid paying those taxes. He would have to pay capital gains based on the basis when you bought them, but only when he cashed them. You would pay no taxes on the transfer, and could give up to the gift tax limit of 15/30k per year for single/married. These could effectively be shares that you bought when you were in a lower bracket. If you don’t want him to touch it before his retirement age, you might be able to set up a trust with him as a beneficiary and write in rules for withdrawal. But if it pays dividends he'd have to report them as income and she doesn't want him to know about the account. If it's in a Revocable Living Trust in her name with him as a beneficiary, to the IRS the trust doesn't exist. (My brother the tax CPA told me that when I had one with DH as beneficiary.) So, Mich is back to paying taxes on the investment income. Sorry Fidelity shut down the idea. My family just had an unfortunate tangle with them over my elderly Dad's accounts- won't go into all the gory details but they gave my 2 brothers a big hassle over getting access to Dad's accounts even though they had the right paperwork executed ahead of time. It seems straightforward to me to set up an account on-line at a brokerage and put it in his name but with your address, but I'm an amateur. I also discovered when I changed my mailing address to a PO Box that MANY large companies I dealt with picked that up and made the change automatically. Fidelity may have been one. This might happen if your brother moves and fills out a Forwarding notice with the USPS and then mailings on the account might go to him unless you supply the address as "In care of..". I get what you're trying to do- my grandchildren's 529s are getting to the point (balance over $70K) that it's creating major savings for me because the investment income isn't taxed.
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Deleted
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Post by Deleted on Sept 20, 2020 8:03:02 GMT -5
Well, damn.....Fidelity shut this down, but TBH I don’t know if the guy I spoke to knew what I was talking about. We have a tax guy on retainer, I’m going to see if I can’t get another opinion. I think the biggest problem would be contributing to the account. You'd have to have a linked bank account and I'm guessing they'd want the names to match.
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Deleted
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Post by Deleted on Sept 20, 2020 10:14:27 GMT -5
Would you? I don’t need a linked account for the 529s. I just deposit a check via an app.
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Artemis Windsong
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Post by Artemis Windsong on Sept 20, 2020 12:57:02 GMT -5
I haven't read through all the suggestions.
I wanted to put money away for the grandchildren's education. I opened a brokerage account earmarked for them. The amount we agreed to give them each semester ended up barely covering books. Two did graduate college.
The suggestion here is to put the money in an account in your name and earmarked for him. I know, tax consequences but you keep control and if things go south, you keep the money.
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lynnerself
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Post by lynnerself on Sept 20, 2020 17:48:17 GMT -5
I was discussing this concept with DH.
His opinion was interesting.
If you were to open an account with someones else's name and SS number and used your address, and did all the electronic agreement to terms stuff as if you were them, Couldn't that be construed as identity theft? No matter how good your intentions were?
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Deleted
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Post by Deleted on Sept 20, 2020 21:58:27 GMT -5
Would you? I don’t need a linked account for the 529s. I just deposit a check via an app. I don't know. 529's are designed for multiple people to contribute on behalf of one beneficiary, but it just seems like someone making a contribution to someone else's IRA would be more questionable. I mean, you can open an IRA for a child, but it has to be a custodial account. I do agree with lynnerself's DH. I think it is a kind of identity theft, (not that Mich has anything but good intentions), but in theory, someone could open a Roth in someone else's name, contribute to it every year in addition to their own and then start drawing on it in retirement as well.
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Post by The Walk of the Penguin Mich on Sept 20, 2020 22:17:24 GMT -5
It possibly being considered identity theft never even crossed my brain. Damn.
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Deleted
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Post by Deleted on Sept 21, 2020 7:19:18 GMT -5
I do agree with lynnerself 's DH. I think it is a kind of identity theft, (not that Mich has anything but good intentions), but in theory, someone could open a Roth in someone else's name, contribute to it every year in addition to their own and then start drawing on it in retirement as well. Wow- I never thought of it that way but I could see someone less honest doing that. Mich, what would happen if he knew about the account? Are you concerned that he'd harass you every time he had an "emergency" and ask you to take money out? Or do you think it would just make him even more reluctant to make sound financial decisions because he figures you're taking care of him?
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Deleted
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Post by Deleted on Sept 21, 2020 7:52:01 GMT -5
I do agree with lynnerself 's DH. I think it is a kind of identity theft, (not that Mich has anything but good intentions), but in theory, someone could open a Roth in someone else's name, contribute to it every year in addition to their own and then start drawing on it in retirement as well. Wow- I never thought of it that way but I could see someone less honest doing that. Mich, what would happen if he knew about the account? Are you concerned that he'd harass you every time he had an "emergency" and ask you to take money out? Or do you think it would just make him even more reluctant to make sound financial decisions because he figures you're taking care of him? Actually, I don't think he would have to "ask" her anything. Once she opened it in his name, it becomes "his" money. That is probably why she doesn't want him to know. His access to it is only controlled by tax laws.
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Deleted
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Post by Deleted on Sept 21, 2020 9:24:59 GMT -5
Actually, I don't think he would have to "ask" her anything. Once she opened it in his name, it becomes "his" money. That is probably why she doesn't want him to know. His access to it is only controlled by tax laws. Oh, yeah. I think I posted that before I'd had my full ration of morning coffee.
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Post by The Walk of the Penguin Mich on Sept 21, 2020 12:15:43 GMT -5
Wow- I never thought of it that way but I could see someone less honest doing that. Mich, what would happen if he knew about the account? Are you concerned that he'd harass you every time he had an "emergency" and ask you to take money out? Or do you think it would just make him even more reluctant to make sound financial decisions because he figures you're taking care of him? Actually, I don't think he would have to "ask" her anything. Once she opened it in his name, it becomes "his" money. That is probably why she doesn't want him to know. His access to it is only controlled by tax laws. Yep. My brother is 55 right now and is working. He is doing ok. I offered him money when he lost his job to Covid, and again when I called him on his birthday earlier this month to wish him happy birthday and I had to hang up on him when he started in on politics. As long as he can work, all is good. But I do want him to have some sort of safety net. He has nothing.
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Clifford
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Post by Clifford on Sept 21, 2020 12:57:28 GMT -5
Actually, I don't think he would have to "ask" her anything. Once she opened it in his name, it becomes "his" money. That is probably why she doesn't want him to know. His access to it is only controlled by tax laws. Yep. My brother is 55 right now and is working. He is doing ok. I offered him money when he lost his job to Covid, and again when I called him on his birthday earlier this month to wish him happy birthday and I had to hang up on him when he started in on politics. As long as he can work, all is good. But I do want him to have some sort of safety net. He has nothing. Of course, you could just be the safety net. Your family could just secretly plan to pull up to $30k per year from the account of your choice and gift it, starting with the year he retires. Write a great little note at the retirement party. Just let it grow where it is now. If he's in your will and he would get some amount in that event, then it's basically the same, right?
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Post by The Walk of the Penguin Mich on Sept 21, 2020 13:59:59 GMT -5
Yep. My brother is 55 right now and is working. He is doing ok. I offered him money when he lost his job to Covid, and again when I called him on his birthday earlier this month to wish him happy birthday and I had to hang up on him when he started in on politics. As long as he can work, all is good. But I do want him to have some sort of safety net. He has nothing. Of course, you could just be the safety net. Your family could just secretly plan to pull up to $30k per year from the account of your choice and gift it, starting with the year he retires. Write a great little note at the retirement party. Just let it grow where it is now. If he's in your will and he would get some amount in that event, then it's basically the same, right? No. I am trying to take advantage of an untaxed (in retirement) retirement account for my brother (who could fund this himself if he had the money) and avoid ME paying taxes on the EARNINGS of that account that I have invested in his behalf.. It is not the same. I can invest the money on his behalf and pay interest on the contributions and then I would have to pay interest on the earnings. If it is in a retirement account, I can pay tax on the contributions and the earnings (which he would also receive) are untaxed to either of us.
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Ombud
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Post by Ombud on Sept 27, 2020 16:45:48 GMT -5
I'm a little late to the thread but -----
When everything was going great and everyone was working in February, I opened a Roth for my grandson. He picked the investment (SCHB), all forms and notices are delivered online. Nothing comes as a hard copy. In our case, DGS will learn through this so it works for us.
So it is possible for OP to open it, manage it, get all paperwork without him knowing it. Is the idea to build up a significant balance to maybe inspire him to want to do it?
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Post by The Walk of the Penguin Mich on Sept 27, 2020 17:06:40 GMT -5
I'm a little late to the thread but ----- When everything was going great and everyone was working in February, I opened a Roth for my grandson. He picked the investment (SCHB), all forms and notices are delivered online. Nothing comes as a hard copy. In our case, DGS will learn through this so it works for us. So it is possible for OP to open it, manage it, get all paperwork without him knowing it. Is the idea to build up a significant balance to maybe inspire him to want to do it? Yeah, that's a custodial IRA for those under 18. That's legit. You just can't do it for your 55 year old sibling that's lousy with money too.
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Ombud
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Post by Ombud on Sept 27, 2020 17:15:03 GMT -5
I'm a little late to the thread but ----- When everything was going great and everyone was working in February, I opened a Roth for my grandson. He picked the investment (SCHB), all forms and notices are delivered online. Nothing comes as a hard copy. In our case, DGS will learn through this so it works for us. So it is possible for OP to open it, manage it, get all paperwork without him knowing it. Is the idea to build up a significant balance to maybe inspire him to want to do it? Yeah, that's a custodial IRA for those under 18. That's legit. You just can't do it for your 55 year old sibling that's lousy with money too. Actually we opened a Roth IRA online at Schwab with a 6k check dropped off the next day in their Walnut Creek office. He's 23
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Post by The Walk of the Penguin Mich on Sept 27, 2020 17:19:23 GMT -5
Yeah, that's a custodial IRA for those under 18. That's legit. You just can't do it for your 55 year old sibling that's lousy with money too. Actually we opened a Roth IRA online at Schwab with a 6k check dropped off the next day in their Walnut Creek office. He's 23 Hmmm....I got a flat 'no' when I called Fidelity. Maybe I should try again? Thanks.
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Ombud
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Post by Ombud on Sept 27, 2020 17:38:48 GMT -5
we did not call, we did it online
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Lizard Queen
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Post by Lizard Queen on Sept 27, 2020 17:54:28 GMT -5
Just tell him about it, and if he takes any out early, you will stop contributing to it.
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