Message Font: Serif | Sans-Serif
No. of Recommendations: 0
My parents' will provides that I share equally with my siblings in the division of their property. That proprty consists in material part of IRAs, my share of the distribution from which will be taxed to me. My share pretax will probably be significantly less than $100,000.

I am wondering whether it would tax advantageous to ask my parents to skip me and leave the money to my child's 529 plan (owned by me). Would this be considered a bequest to my child or to me? If to my child, would the IRA portion of the bequest be taxable at his federal tax margin or mine?

Any thoughts?

Print the post Back To Top
No. of Recommendations: 1
First of all, you aren't taxed on an inheritance. Your parents are. If the whole estate is less that the exempt amount there's no tax. (The exemption is $1,000,000 in 2002 and increasing thereafter, for a while)
I believe that makes your questions meaningless. Except that the IRA is taxed as part of the estate and then taxed to the beneficiary when the money is withdrawn.

Print the post Back To Top
No. of Recommendations: 0
I think this is a great idea.
They can reduce their estate by $100k in one shot.
Plus all growth is TAX FREE, even at withdrawl.

also, Matt Tuttle said this to me earlier:

The law changed this year. Withdrawls are now TAX FREE. A couple of
things your parents could do:

1. fund a 529 for the kids
2. pay directly to the college for their education---if done this way
there is no gift tax
3. make leveraged gifts to a dynasty trust funded with a life insurance
policy. This could avoid estate taxes at every generational level and
turn $1 million into $1 billion. This is how the Kennedys do it.

Did you do this?
Let me know, I think its a good idea.!
Print the post Back To Top
No. of Recommendations: 0

I think you figured out the point of my question by the time you got to your second paragraph (but I wonder why you didn't go back to recast your initial incorrect answer). The inherited IRA money would be taxed at my bracket--it would not be tax free or taxed at the estate level.

So, the question still stands: Is leaving the money to a 529 plan a successful way to have the IRA amounts taxed in the 529 beneficiary's lower bracket?

Print the post Back To Top