401(k) contribution
59 RepliesJump to last post
Primo, it’s an interesting idea and one that I’d like to find out for sure whether it can be done. If it can, it might make sense in certain circumstance and if the person isn’t insurable at good rates. Keep in mind that with the life insurance, everything can remain tax deferred for just as long, but ultimately with a much higher cost basis, thus much lower taxes. (the annuity wouldn’t get purchased until the death of the insured) Of course, if the next generation is also wealthy, this money is still ultimately going to disappear to estate taxes and income taxes.
Definitely take the time to learn more about life insurance. Even if you don't want to do it, there are probably times that life insurance makes the most sense for your clients, but you don't know it.I've got an insurance company's rep (big well know company, very competitive rates) in my town so I just call him to do the work. I do the planning, determine the need, he does the pitch, I still get paid. I've got a reasonable feel of insurance overall, but leave the details to others. My suggestion was not "do this instead", it was "consider this also". Let us know what you ulitimately do.
Obviously more info is needed to select the “best” answer but the 401k has many benefits not mentioned.
1: Liability protection granted by the Supreme Court (I think but I am not a lawyer).
2: The “tax rates are going up argument” makes deferral even more valuable as those rates would be on NQ money immediately. If tax rates were legislated to skyrocket I am pretty sure someone would post it here and most of us would be smart enough to pull our money out the year before. Of course it could happen overnight while we were sleeping or it could be retroactive. I am still betting we could see that train wreck from a ways off.
3: The current estate and income tax argument against 401k only works if the people take money from it to pay estate taxes. The whole point of a stretch is to avoid current and future taxes as long as is legally possible. Why not step up cost basis on NQ assets and sell for little or no gain and little or no taxes to pay estate taxes.
4: I know we can always create future scenarios of doom and gloom but that is not what we do. Our clients deal in possibilities. We deal in probabilities.
Some of my assumptions may very well be wrong. Let me know.
Forgot one thing…If the inheriting spouse dies will the survivor still get the $15,000,000? Grandkids probably. Spouse I guess less likely. Having as much as possible in that 401k could come in handy depending on how much, which one owns it, etc.
1: Liability protection granted by the Supreme Court (I think but I am not a lawyer).
Liability protection doesn't have much meaning when the future after tax value will be zero. 2: The "tax rates are going up argument" makes deferral even more valuable as those rates would be on NQ money immediately. If tax rates were legislated to skyrocket I am pretty sure someone would post it here and most of us would be smart enough to pull our money out the year before. If you read my posts, you'll notice that not once did I mention anything in my argument about tax rates going up. However, your argument is nonsense. If tax rates go up, one can't just take their money out of their 401(k) since this would trigger immediate taxation and penalties. 3: The current estate and income tax argument against 401k only works if the people take money from it to pay estate taxes. The whole point of a stretch is to avoid current and future taxes as long as is legally possible. Why not step up cost basis on NQ assets and sell for little or no gain and little or no taxes to pay estate taxes.Sorry, but you're wrong. Let me explain again. The 401(k) gets transferred via beneficiary designation. The estate pays the estate taxes. Let's make this easy and assume that the only assets are $19,000,000 of cash under the mattress and $1,000,000 in the 401(k). For simplicity, let's also just assume that estate taxes start at the first dollar. At death, the beneficiary gets $1,000,000 from the 401(k). Having this $1,000,000 as part of the estate will increase the estate taxes (federal and state) by $660,000. If the beneficiary takes this all at once and doesn't put it into an IRA, they will also owe income tax of over $400,000 on this money. Sure, they can put it in an IRA and stretch it. It won't change the fact that over 40% of every payment will go to pay the taxman.
66% of the estate will disappear to estate taxes. For money that is qualified, another 40%+ of this will disappear due to income taxes. None of the money left under the mattress will face income taxes or money left in any other investment except non-qualified annuities. Let's make this real simple and use 66% total estate tax bill starting at dollar 1. Look at 3 people each with $20,000,000. Joe has $20,000,000 in an IRA. Sam has $20,000,000 in his bank account. Charlie has been gifting money to an ILIT with a death benefit of $20,000,000. Ytreq is Joe's son and inherits the IRA. He rolls this money into a beneficiary IRA. The IRS will come after Joe for the estate tax since the estate has no money. He'll owe them $13,200,000. In order to come up with the $13,200,000, he'll have to cash in the $20,000,000 IRA. After paying 40% in income taxes, he'll have $12,000,000. He'll still owe the IRS $1,200,000. The IRS gets everything. Ytreq gets nothing. Deekay is Sam's son and is the beneficiary of the estate. The estate will pay estate taxes of $13,200,000. Deekay will $6,800,000 and have a basis of $6,800,000 and owe no taxes. Anonymous is Charlie's son and is the beneficiary of the ILIT. The estate won't owe any taxes. Anonymous will get $20,000,000 with a basis of $20,000,000 and owe no taxes. 4: I know we can always create future scenarios of doom and gloom but that is not what we do. Our clients deal in possibilities. We deal in probabilities.Some of my assumptions may very well be wrong. Let me know.
There's no doom and gloom here. I'm just dealing with current tax laws. Given the following set of facts, can you give me a scenario where someone would be better off inheriting qualified money instead of being the beneficiary of an ILIT?: 1) Total inheritance expecting to be over $20,000,000. 2) Beneficiary of all assets will be the same.
The kids would actually be better off fiancially if on the parent's death bed, they took the money out of the 401(k) and gave it away to strangers. So, yes, your assumptions are wrong. Welcome to the board! (I mean that sincerely.)Forgot one thing…If the inheriting spouse dies will the survivor still get the $15,000,000? Grandkids probably. Spouse I guess less likely. Having as much as possible in that 401k could come in handy depending on how much, which one owns it, etc.
The question is moot because I'll have them get the money out of the 401(k) asap and not contribute more. There's nothing handy about having money in the 401(k). The best case scenario is that the money grows tax deferred and income taxes will come out when the money is removed. The worst case scenario is that qualified money exists at the second death and over 100% in taxes gets paid.I know better than to answer this but here goes anyway…
anonymous, your response assumes that all of my points were directed at your posts. Note “if you read my posts”. That is presumptious and wrong. Part of your argument is “lets make it simple”. It would have been better if you said simple and accurate. I know this is blunt for a newbie but your comment of “nonsense” when you make up your own tax code and math is a bit rude and useless. I will now
politely and factually rebut most/all of your thoughtful responses.
--------------------------------------------------------------------------------
1: Liability protection granted by the Supreme Court (I think but I am not a lawyer).
Liability protection doesn’t have much meaning when the future after tax value will be zero.
The after tax value is only zero using your math and tax codes. Rather foolish of the Courts to waste time on this if it was already known that its actual value was zero. Silly Judges. ytrewq
2: The “tax rates are going up argument” makes deferral even more valuable as those rates would be on NQ money immediately. If tax rates were legislated to skyrocket I am pretty sure someone would post it here and most of us would be smart enough to pull our money out the year before.
If you read my posts, you’ll notice that not once did I mention anything in my argument about tax rates going up. However, your argument is nonsense. If tax rates go up, one can’t just take their money out of their 401(k) since this would trigger immediate taxation and penalties.
I did not say you said that nor did I reference your post. I am still right and this was posited in the topic. The higher the tax rate the more valuable tax deferral. Math. One CAN just take their money out of a 401(k). It is simply a mathematical decision. If taking it out now (maybe a penalty maybe not) generates more after tax income than the hypothetical rate that taxes are going to in the future then take it out. Period. Nonsense? Mathematically prove it wrong. ytrewq
3: The current estate and income tax argument against 401k only works if the people take money from it to pay estate taxes. The whole point of a stretch is to avoid current and future taxes as long as is legally possible. Why not step up cost basis on NQ assets and sell for little or no gain and little or no taxes to pay estate taxes.
Sorry, but you’re wrong. Let me explain again. The 401(k) gets transferred via beneficiary designation. The estate pays the estate taxes. Let’s make this easy and assume that the only assets are $19,000,000 of cash under the mattress and $1,000,000 in the 401(k).
For simplicity, let’s also just assume that estate taxes start at the first dollar. At death, the beneficiary gets $1,000,000 from the
401(k). Having this $1,000,000 as part of the estate will increase the estate taxes (federal and state) by $660,000. If the
beneficiary takes this all at once and doesn’t put it into an IRA, they will also owe income tax of over $400,000 on this money. Sure,
they can put it in an IRA and stretch it. It won’t change the fact that over 40% of every payment will go to pay the taxman.
This is where the simple but inaccurate starts. Published Federal income and estate tax documents don’t seem to use the same math as your example. Estate Taxes graduate to 45% and that is after exclusions, deductions and credits. Your math uses an “effective” rate of 66%. No matter what state you live in I’m not buying it unless you can prove it. Simple and you are wrong. I am also not sure how you got a 40% tax rate on the stretch distributions? Federal tax tables graduate to 35% over $349,700 (2007). Wouldn’t the RMD for the stretch beneficiaries at their presumed younger ages be pretty low even for $1,000,000? No time to pull up the calculator I am moving on to rebut the rest of your post. ytrewq
66% of the estate will disappear to estate taxes. For money that is qualified, another 40%+ of this will disappear due to income taxes.
None of the money left under the mattress will face income taxes or money left in any other investment except non-qualified annuities.
Let’s make this real simple and use 66% total estate tax bill starting at dollar 1. Look at 3 people each with $20,000,000. Joe has
$20,000,000 in an IRA. Sam has $20,000,000 in his bank account. Charlie has been gifting money to an ILIT with a death benefit of
$20,000,000.
Ytreq is Joe’s son and inherits the IRA. He rolls this money into a beneficiary IRA. The IRS will come after Joe for the estate tax
since the estate has no money. He’ll owe them $13,200,000. In order to come up with the $13,200,000, he’ll have to cash in the
$20,000,000 IRA. After paying 40% in income taxes, he’ll have $12,000,000. He’ll still owe the IRS $1,200,000. The IRS gets
everything. Ytreq gets nothing.
I have already proven your math is wrong. See above. By the way, why do you not take growth on the money deferred from taxes into account in any of your scenarios? The 40% (your number) of earnings sheltered by taxes would be huge over time. I would guess even bigger than your head (joke, sorry poor taste but I had to). ytrewq
Deekay is Sam’s son and is the beneficiary of the estate. The estate will pay estate taxes of $13,200,000. Deekay will $6,800,000 and
have a basis of $6,800,000 and owe no taxes.
I hope it was not IndyMac. Math is wrong. Real world it took Sam more money to get to $20,000,000 because it was being taxed as ordinary income. Ytrewq’s father made a mountain out of a mole hill due to tax deferral. Go Dad! ytrewq
Anonymous is Charlie’s son and is the beneficiary of the ILIT. The estate won’t owe any taxes. Anonymous will get $20,000,000 with a
basis of $20,000,000 and owe no taxes.
$20,000,000 DB with the equivalent of a $15,000 401(k) contribution? Charlie must be like 2 years old and have a life expectancy of 300. Oh, by the way, do they have to worry about gift taxes? Is this apples to apples? $20,000,000 DB is not $20,000,000 cash or securities. I would rather my Dad be alive and have $20,000,000 than him having a $20,000,000 DB and paying our rent money to purchase it. ytrewq
4: I know we can always create future scenarios of doom and gloom but that is not what we do. Our clients deal in possibilities. We deal in probabilities.
Some of my assumptions may very well be wrong. Let me know.
There’s no doom and gloom here. I’m just dealing with current tax laws. Given the following set of facts, can you give me a scenario
where someone would be better off inheriting qualified money instead of being the beneficiary of an ILIT?: 1) Total inheritance
expecting to be over $20,000,000. 2) Beneficiary of all assets will be the same.
Duh. Silly rabbit Trix are for kids. This is a loaded question (by you) and has nothing to do with the topic or real life. However, I am going to give it a real try. I am going to say the spouse of the owner of the qualified money. Why? As the spouse the ILIT DB would be brought back into his/her estate. This seems rather pointless when there is an Unlimited Marital Deduction. Oh, by the way, the beneficiary is OJ Simpson and he has a huge judgement against him. The worthless 401(k) has been protected by silly judges or
rabbits. I forget. Oh, and you are not dealing with current tax laws. You are dealing with made up ones. ytrewq
The kids would actually be better off financially if on the parent’s death bed, they took the money out of the 401(k) and gave it away to
strangers.
Since this is true I will offer, against my better judgment, to let you have all of your clients give me their qualified dollars. I will even pay the 40% tax. Have the kids gift to a charity for the deduction not strangers. ytrewq
anonymous, I came at you hard but only because you came at me that way first. I hope I can get and share ideas from others here and I am not a hater.
Thanks for the welcome!
Sometime when I have an afternoon to kill I’m going to read all that. For now is there a synopsis available?
iceco1d,
You are obviously right about the colors. I will learn to use the forum features. If you care to be specific about what you disagree with I will read your response with an open mind and learn from it.
anonymous,
I am sorry about the sarcasm in my post. It was not helpful and I was just being defensive. I do stand by my post until proven wrong. I will then humbly admit my mistakes and be glad I learned here and not in front of a client.
Anon, I agree qual money does not benefit wealthy individuals in many cases. However, if the 401k were included in the excluded portion of the estate, you would avoid the double taxation. Taking into account company match, it may not be a bad idea, although I am unwilling to run the numbers to say for sure. Just a thought.
As the spouse the ILIT DB would be brought back into his/her estate
No, because the ILIT is set up to pay on the second person's death. A properly set up ILIT uses second to die insurance. The death benefit is not paid out until all the insured are dead. That's the whole POINT of an ILIT. Oh, by the way, do they have to worry about gift taxes? Is this apples to apples Again, not if the ILIT is set up properly. You just choose enough beneficaries of the life insurance so that the premiums paid don't affect the allowable annual gift. So if the premiums on the insurance are 24,000 a year and the annual gift tax exclusion is 12,000. You set up 2 or more beneficaries. Ta Dah... no gift tax.Babs,
I answered the question as posed. You changed the question. 1 beneficiary not 3. 1 life not 2. I even made light of it with the OJ Simpson example (That was a d@mn good answer to a loaded question). I am sure it will be impossible to be correct if a: The questions are formed with no correct answer (ie Can God make a mountain so big he cannot move it?) or the correct answer is not allowed as a solution. b: If others can say that something is a fact just by them saying it yet I reference Federal documents & simple math yet it is wrong. No disrespect just a different opinion of the question.
iceco1d. Sorry I mistook your quote of…“I don’t think so…” as disagreeing with me. I did not know what else it meant. If it even mattered anymore I would change the colors of the post to make it clear but I doubt that it does.
I am probably getting off on the wrong foot here and should drop this topic but I think that part of point is to share ideas and learn from each other. I will be factually wrong many times I am sure. Sorry if I offended anyone. I enjoy a good debate as much as the next person.
iceco1d,
Reread your post and saw it was not to me. Disregard my quoting you. I apologize for the mistake.
[quote=ytrewq]I know better than to answer this but here goes anyway…
anonymous, your response assumes that all of my points were directed at your posts. Note “if you read my posts”. That is presumptious and wrong. Part of your argument is “lets make it simple”. It would have been better if you said simple and accurate. I know this is blunt for a newbie but your comment of “nonsense” when you make up your own tax code and math is a bit rude and useless. I will now
politely and factually rebut most/all of your thoughtful responses.
--------------------------------------------------------------------------------
1: Liability protection granted by the Supreme Court (I think but I am not a lawyer).
Liability protection doesn’t have much meaning when the future after tax value will be zero.
The after tax value is only zero using your math and tax codes. Rather foolish of the Courts to waste time on this if it was already known that its actual value was zero. Silly Judges. ytrewq
2: The "tax rates are going up argument" makes deferral even more valuable as those rates would be on NQ money immediately. If tax rates were legislated to skyrocket I am pretty sure someone would post it here and most of us would be smart enough to pull our money out the year before. So, you would rather defer at 35% and withdraw at 60%? How does that make deferral more beneficial?
If you read my posts, you'll notice that not once did I mention anything in my argument about tax rates going up. However, your argument is nonsense. If tax rates go up, one can't just take their money out of their 401(k) since this would trigger immediate taxation and penalties.
I did not say you said that nor did I reference your post. I am still right and this was posited in the topic. The higher the tax rate the more valuable tax deferral. Math. One CAN just take their money out of a 401(k). It is simply a mathematical decision. If taking it out now (maybe a penalty maybe not) generates more after tax income than the hypothetical rate that taxes are going to in the future then take it out. Period. Nonsense? Mathematically prove it wrong. ytrewq
If you can defer at 90% and withdraw at 35%, then yes deferral makes sense. Do YOU know where taxes will be in the future? I sure don't, but judging by history there's a better chance that income taxes will higher than lower than they are today.
3: The current estate and income tax argument against 401k only works if the people take money from it to pay estate taxes. The whole point of a stretch is to avoid current and future taxes as long as is legally possible. Why not step up cost basis on NQ assets and sell for little or no gain and little or no taxes to pay estate taxes.
Sorry, but you're wrong. Let me explain again. The 401(k) gets transferred via beneficiary designation. The estate pays the estate taxes. Let's make this easy and assume that the only assets are $19,000,000 of cash under the mattress and $1,000,000 in the 401(k).
For simplicity, let's also just assume that estate taxes start at the first dollar. At death, the beneficiary gets $1,000,000 from the
401(k). Having this $1,000,000 as part of the estate will increase the estate taxes (federal and state) by $660,000. If the
beneficiary takes this all at once and doesn't put it into an IRA, they will also owe income tax of over $400,000 on this money. Sure,
they can put it in an IRA and stretch it. It won't change the fact that over 40% of every payment will go to pay the taxman.
This is where the simple but inaccurate starts. Published Federal income and estate tax documents don't seem to use the same math as your example. Estate Taxes graduate to 45% and that is after exclusions, deductions and credits. Your math uses an "effective" rate of 66%. No matter what state you live in I'm not buying it unless you can prove it. Simple and you are wrong. I am also not sure how you got a 40% tax rate on the stretch distributions? Federal tax tables graduate to 35% over $349,700 (2007). Wouldn't the RMD for the stretch beneficiaries at their presumed younger ages be pretty low even for $1,000,000? No time to pull up the calculator I am moving on to rebut the rest of your post. ytrewq
66% of the estate will disappear to estate taxes. For money that is qualified, another 40%+ of this will disappear due to income taxes.
None of the money left under the mattress will face income taxes or money left in any other investment except non-qualified annuities.
Let's make this real simple and use 66% total estate tax bill starting at dollar 1. Look at 3 people each with $20,000,000. Joe has
$20,000,000 in an IRA. Sam has $20,000,000 in his bank account. Charlie has been gifting money to an ILIT with a death benefit of
$20,000,000.
Ytreq is Joe's son and inherits the IRA. He rolls this money into a beneficiary IRA. The IRS will come after Joe for the estate tax
since the estate has no money. He'll owe them $13,200,000. In order to come up with the $13,200,000, he'll have to cash in the
$20,000,000 IRA. After paying 40% in income taxes, he'll have $12,000,000. He'll still owe the IRS $1,200,000. The IRS gets
everything. Ytreq gets nothing.
I have already proven your math is wrong. See above. By the way, why do you not take growth on the money deferred from taxes into account in any of your scenarios? The 40% (your number) of earnings sheltered by taxes would be huge over time. I would guess even bigger than your head (joke, sorry poor taste but I had to). ytrewq The gross amount will probably be huge, this I can agree with. However, do you want the biggest pile of money or the highest amount of income that pile of money can generate? If I withdraw from the account and I lose 90% to taxes, who cares how much deferral grew the account to?
FWIW, I think it is in extremely poor taste for someone who has been involved on this message board for 15 minutes to insult a respected member.
Deekay is Sam's son and is the beneficiary of the estate. The estate will pay estate taxes of $13,200,000. Deekay will $6,800,000 and
have a basis of $6,800,000 and owe no taxes.
I hope it was not IndyMac. Math is wrong. Real world it took Sam more money to get to $20,000,000 because it was being taxed as ordinary income. Ytrewq's father made a mountain out of a mole hill due to tax deferral. Go Dad! ytrewq Since when does all NQ money get taxed yearly at ordinary income tax rates? Here's a question: Where can someone invest without locking up the money until 59 1/2, defer taxes along the way, AND withdraw tax-free?
Anonymous is Charlie's son and is the beneficiary of the ILIT. The estate won't owe any taxes. Anonymous will get $20,000,000 with a
basis of $20,000,000 and owe no taxes.
$20,000,000 DB with the equivalent of a $15,000 401(k) contribution? Charlie must be like 2 years old and have a life expectancy of 300. Oh, by the way, do they have to worry about gift taxes? Is this apples to apples? $20,000,000 DB is not $20,000,000 cash or securities. I would rather my Dad be alive and have $20,000,000 than him having a $20,000,000 DB and paying our rent money to purchase it. ytrewq
4: I know we can always create future scenarios of doom and gloom but that is not what we do. Our clients deal in possibilities. We deal in probabilities.
Some of my assumptions may very well be wrong. Let me know.
There's no doom and gloom here. I'm just dealing with current tax laws. Given the following set of facts, can you give me a scenario
where someone would be better off inheriting qualified money instead of being the beneficiary of an ILIT?: 1) Total inheritance
expecting to be over $20,000,000. 2) Beneficiary of all assets will be the same.
Duh. Silly rabbit Trix are for kids. This is a loaded question (by you) and has nothing to do with the topic or real life. However, I am going to give it a real try. I am going to say the spouse of the owner of the qualified money. Why? As the spouse the ILIT DB would be brought back into his/her estate. This seems rather pointless when there is an Unlimited Marital Deduction. Oh, by the way, the beneficiary is OJ Simpson and he has a huge judgement against him. The worthless 401(k) has been protected by silly judges or
rabbits. I forget. Oh, and you are not dealing with current tax laws. You are dealing with made up ones. ytrewq Since when is a QP the only creditor-protected asset one can own? What happens if the spouse dies and therefore the unlimited marital deduction cannot be used? What happens if the unlimited marital deduction is struck down in the courts? It seems like you're using today's senarios and applying them like they'll never change in the future.
The kids would actually be better off financially if on the parent's death bed, they took the money out of the 401(k) and gave it away to
strangers.
Since this is true I will offer, against my better judgment, to let you have all of your clients give me their qualified dollars. I will even pay the 40% tax. Have the kids gift to a charity for the deduction not strangers. ytrewq
I've already belabored the 40% income tax rate.
anonymous, I came at you hard but only because you came at me that way first. I hope I can get and share ideas from others here and I am not a hater.
Thanks for the welcome!
Anonymous did not come at you "hard". He had serious questions to your logic and, frankly, you level of knowledge. IMO, you did not do anything to convince me that shoving $15k a year into a 401k is correct in this situation. In fact, I'm more convinced that not putting any money into it makes more sense.
[/quote] In the future, I've demonstrated how to respond to lengthy posts by using different colors. FWIW, I don't want you to think I am attacking you. In fact, I'm glad we're having this level of discourse. So much of this board seems like Edward Jones bashing and anti-annuity rhetoric.
I do stand by my post until proven wrong. I will then humbly admit my mistakes and be glad I learned here and not in front of a client.
Ok, let's start here. Under current tax laws, if death occurs after 2010, what is the maximum federal estate tax rate? In my client's state, what is the maximum state estate tax? Let me answer these questions for you...50% and 16% respectively. The last time that I checked that equaled 66%. If the people inheriting the money make a good living, under current tax law, federal, state, and local income taxes on the RMD will be over 40%. When you humbly admit your mistakes, we can continue this conversation.No, because the ILIT is set up to pay on the second person’s death. A properly set up ILIT uses second to die insurance. The death benefit is not paid out until all the insured are dead. That’s the whole POINT of an ILIT.
Babs, this is just something to think about. An ILIT is usually used to pay on the second person's death, but it doesn't necessarily use 2nd to die insurance. In fact, with a young couple, my preference is to use two separate individual policies. The reason for this is that death may occur years or even decades apart. Ex. Joe and Mary's ILIT buys a $2,000,000 2nd to die GUL policy. Joe dies in 10 years. Mary dies in 40 years. In 40 years, the trust has $2,000,000. Chuck and Diane ILIT buys 2 $1,000,000 GUL policies. Joe dies in 10 years. $1,000,000 gets paid into the trust. If it grows by 5% after tax, the trust will have 5.3 million when Mary dies. ($1,000,000 from Mary's policy and 4.3 million from the growth of the 1 million.) I used GUL in this example to ignore the growth in the policies, but I really only like these policies at older ages.oops, am I wrong about the 50%? Doesn’t the tax go back to 55%…so the total estate taxes will be 71%. Now, there is currently a deduction for state estate taxes, but that my also expire after 2010. I’m not really sure. The exact numbers don’t matter. The point is that with qualified money, both estate taxes and income taxes come from the gross amount, so taxes can take all of the value.
At least with non-qualfied assets (other than annuities) this can't happen because of the step-up in basis.[quote=anonymous]I’m dealing with a young, wealthy couple. They have a net worth of around $7,000,000. They will inherit at least $15,000,000. They have no debt and live very comfortably on $4,000/month. $150,000 is gifted to them every year. The grandparents have already funded education for their two children.
Pertaining to their 401(k) plans, should they max out their contribution, only contribute to the match, or contribute nothing? What is your rationale? I'll answer other questions if they are needed to answer mine. Thanks. I have my thoughts, but I was curious as to what others thought.[/quote] I didn't read through the entire 7 pages so forgive me if someone has already suggested this. I would take a look at a Charitable Lead Trust or a private foundation. People with that level of wealth at one time or another will usually turn to philanthropic issues with their wealth. With a Charitable Lead Trust not only does it allow you to receive a tax deduction, and give to a personal cause, it also is a good tool at transferring an estate, tax free(not totally) to heirs. As long as the money goes through a charity, you set a specific payment stream and after that stream has been fulfilled you can transfer the remaining assets to individuals named in the trust with no gift tax. In this solution it really wouldn't matter what the government did with taxes, as long as they don't touch the charity deductions (which they won't). Or with a Private Foundation they can acomplish the same thing and have complete control over the funds and have their heirs as board members. Just something else to add to your bag when approaching this prospect with a solution. I just feel like talking about 401k contributions with this level of assets is like going elephant hunting with a BB gun, your just not going to get anything of significant value accomplished.If you want to learn, then you need to listen. No one in their right mind would set up an ILIT for a married couple with single life insurance and have the proceeds paid out to the surviving spouse. The entire purpose of an ILIT is for estate planning and to pay out of the trust at the last death to cover potential unknown amounts of estate taxes. If the payout is more than the taxes....good. When structuring an estate plan and setting up an ILIT the advisor and the attorney working together will be cognizant of the gift tax exemption amount and set up the contributions and numbers of beneficaries accordingly. Either you are a troll and don't have the first clue about financial advisory business or you are a severe danger to your potential clients. To: Anon. My answer to ytrewq was based on his mistaken idea that the surving spouse would have the insurance proceeds brought back into her/his estate with the first death. Your idea is very sound to individually insure the clients. Sometimes both spouses can't qualify for insurance for health reasons so then you would insure just one person but the proceeds stay within the trust.Babs,
I answered the question as posed. You changed the question. 1 beneficiary not 3. 1 life not 2. I even made light of it with the OJ Simpson example (That was a d@mn good answer to a loaded question). I am sure it will be impossible to be correct if a: The questions are formed with no correct answer (ie Can God make a mountain so big he cannot move it?) or the correct answer is not allowed as a solution. b: If others can say that something is a fact just by them saying it yet I reference Federal documents & simple math yet it is wrong. No disrespect just a different opinion of the question.
iceco1d. Sorry I mistook your quote of…“I don’t think so…” as disagreeing with me. I did not know what else it meant. If it even mattered anymore I would change the colors of the post to make it clear but I doubt that it does.
I am probably getting off on the wrong foot here and should drop this topic but I think that part of point is to share ideas and learn from each other. I will be factually wrong many times I am sure. Sorry if I offended anyone. I enjoy a good debate as much as the next person.