Can I Transfer My Social Security Benefits To Children Or Heirs
When planning for social security distributions, a common question we hear from retirees is, can I provide a portion of my social security benefits to my child or grandchild? The answer is yes, but there are stipulations. Below are a few high-level points on this tax savings scenario and if it may be applicable for you.
Here’s How To Open A Roth Ira For Your Kids
Your childs income is what makes him eligible for the Roth IRA, but a parent or other adult will have to help open the account. Roth IRA providers typically require an adult to open and manage a custodial Roth IRA on behalf of a minor.
The process is simple and should only take about 15 minutes you’ll need to provide Social Security numbers for you and your child, birthdates and other personal information.
Ask The Expert: Transferring A 401 To Someone Else
My question is about 401s. I’d like to give mine to my children while I am alive is it possible to turn it over to them somehow, with them being responsible for paying the future taxes?
You can’t transfer your 401 account to your children during your lifetime. With your spouse’s permission, however, you can designate them to inherit it when you die. beneficiary. You need a signed spousal waiver to name anyone else.)
Only in a divorce can money be transferred from your 401 to another person during your lifetime without triggering taxes. In response to a qualified domestic relations order issued by a divorce court, your 401 plan administrator will divide your account between you and your former spouse. The division makes your ex a plan participant in his or her own right.
Alternatively, a divorce court can order that part of your 401 be paid out as taxable distributions to your former spouse and/or to your children. Distributions to your ex are taxable to your ex but you pay the taxes on court-ordered distributions to your kids, says Ed Slott, a Rockville Centre tax accountant.
On the bright side, your anxiety about future taxes on your 401 may be exaggerated. Even after you retire, you won’t owe taxes on the entire balance only on distributions from the account. The principal will remain tax-deferred, whether you leave it in the 401 plan or transfer it to a traditional IRA.
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Spouses Get The Most Leeway
If someone inherits an IRA from their deceased spouse, the survivor has several choices for what to do with it:
- Treat the IRA as if it were your own, naming yourself as the owner.
- Treat the IRA as if it were your own by rolling it over into another account, such as another IRA or a qualified employer plan, including 403 plans.
- Treat yourself as the beneficiary of the plan.
Each course of action may create additional choices that you must make.
For example, if you are the sole beneficiary and treat the IRA as your own, you may have to take required minimum distributions, depending on your age. But in the right circumstances, you may have the option of not withdrawing money.
If you were not interested in taking money out at this time, you could let that money continue to grow in the IRA until you reach age 72, says Frank St. Onge, an enrolled agent at Total Financial Planning, LLC in the Detroit area, when discussing IRAs inherited from a spouse.
In addition, spouses are able to roll the IRA into an account for themselves. That resets everything. Now they are able to name their own beneficiary that will succeed them and be able to deal with the IRA as if it is their own, says Carol Tully, CPA, principal at Wolf & Co. in Boston.
Can I Transfer 401k Funds To My Kids Before A Divorce
- Posted on Jul 14, 2013
Have you been served with a summons and complaint? If so, automatic orders apply requiring both parties to essentially keep the status quo while undergoing the dissolution process, which means you cannot transfer the funds to your children without your wife’s consent. If you and she are attempting to craft a separation agreement, you can certainly propose that your children receive those monies as a term of settlement. Also, CT is an equitable distribution state, so how assets, debts, and property is apportioned can take many forms, especially if you’re seeking to enter a separation agreement and pursue an uncontested hearing.
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Not Equalizing Their Inheritance
If one or more of your children dont want to receive a specific asset such as a property, and you want your children to inherit equally, youll need to work with your legal and tax advisors to find ways for them to do so.
Consider giving those children other assets, such as a portion of your art collection or certain investment funds. You can also purchase a life insurance policy that will pay out, on your death, a value equal to the assets youre giving to some of your children now.
Rollover Into A New 401k Account
When a 401k account holder leaves one employer to work for another, he typically is offered several options. He can withdraw the accumulated funds from a 401k plan, declare an account in which to rollover the funds or keep the funds in the current account. Employees going to work for a new employer that offers a 401k plan usually benefit by enrolling in the new plan and rolling over all accumulated funds from the old 401k into the new 401k.
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How An Inherited Ira Works
Any type of IRA may be turned into an inherited IRA, including traditional and Roth IRAs, and SIMPLE IRAs. Importantly, the income tax treatment of the IRA remains the same from the original account to the inherited IRA. So accounts made with pre-tax dollars or after-tax dollars are still treated the same way in an inherited IRA.
Unfortunately, this rule is one of only a few straightforward things about inherited IRAs.
When you inherit an IRA, you have many too many! choices to make depending on the situation:
- If you inherited an IRA, and youre the spouse of the original owner, a minor child, chronically ill or disabled, or not more than 10 years younger than the original owner, you have one set of choices. But anyone else has a different set of options.
- Whether the original account owner had to take required minimum distributions can also influence what you can and should do with the IRA.
- Should you try to minimize taxes or maximize cash distribution from the account?
These are a few of the complex questions that an inherited IRA presents to the recipient, and 2019s SECURE Act shook up long-standing practices, creating more confusion.
Some experts advise IRA beneficiaries to do nothing until theyve met with a financial advisor who can explain their options.
At that point, youre in trouble. Before that happens, learn these six must-know tips for handling an inherited IRA.
Not Addressing The Capital Gains Tax Issue
A capital gain refers to the difference between the cost of purchase and the fair market value of a capital asset, such as real estate.
For example, lets say you purchased a property that is not your principal residence many years ago for $150,000, and its now worth $850,000. That means you have a capital gain of $700,000, of which 50% is taxable. Including that $350,000 on top of your regular income could easily push you into a very high tax bracket.
Even if you gift the property, youll still be deemed to have received fair market value for it, and youll have to report the disposition of the property and pay the tax liability even though you havent actually received any money for the asset.
There are ways to address the capital gains tax issue. Talk to your MD Advisor* about claiming the capital gains reserve, buying permanent life insurance or setting up an inter vivos trust.
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Inherited 401 Distribution Options
You have the following choices for withdrawing funds from your inherited 401. They are discussed in detail below.
How To Transfer A Us Pension Into Canada
If you have been working in the U.S. for a period of time, you may have amassed retirement savings in a 401K or IRA. IF you are moving to Canada, you have four options:
Leave the funds in the U.S. account and have a financial advisor manage it for you. Canadian residents are allowed to defer tax on U.S. retirement accounts until they begin to withdraw the funds. However, if you have terminated employment, you may be required to transfer any 401K proceeds to an IRA, and there are taxes associated with that. If you are older than age 59.5, you could pay 20% in withholding taxes on the balance, and if you are under age 59.5, you may have to pay 30%. You should consult with a U.S. tax expert to determine your best option.
If you choose to collapse the account and withdraw it as a lump sum, this will trigger a taxable event. How much you will have to pay depends on your country of residence when the withdrawal is made. If you are still a U.S. resident, U.S. tax rates will apply. If you have moved to Canada, Canadian tax rates will apply. You may have to provide a W8-BEN to the U.S. plan administrator. Before considering this option, you should talk to a tax professional with expertise in US-Canada tax law.
Transfer your U.S. account to a Canadian RRSP. This gets complicated quickly so hang on:
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Ways You Can Gift Your Ira Or 401 Retirement Savings To Your Loved Ones
May 24, 2019 |
You may not be a millionaire, but you may have reached a stage in life that makes you think that you have done all you possibly can to have a blissful retirement.
You are fortunate that your retirement planning has accumulated more than you need. Probably you dont need to rely on IRA or 401 plan your pension and Social Security benefits are enough to sail you through your retirement smoothly.
So, because you dont need the money held in IRA or401, it gets piled up. But IRS doesnt want you to keep your money as it is in your retirement accounts. When you turn 70½, the Required Minimum Distribution kicks in. This means you have to withdraw a certain percentage from those tax-advantaged accounts each year, whether you want it or not. The worst part of it all the percentage increases as you age.
And If you fail to withdraw the RMD, you may need to pay 50% of your Required Minimum Distribution amount each year as a penalty.
However, the issue is taxes. If you wish to gift your money to your child or your loved ones, you have to pay income taxes on what you withdraw, and also pay tax if you let the amount stay in the accounts as it is.
If The Assets Are In A Retirement Account When You Die The Tax Implications Aren’t The Same As If You Take The Money Out Beforehand
Once a person successfully reaches retirement, his or her financial priorities naturally undergo a shift. Where before you were in “build up my portfolio” mode, now you’re in “spend down my portfolio” mode. But carefully, of course, because you don’t want to run out of assets before you run out of time, and it might just be nice to leave a little something to your children.
In this segment of a Motley Fool Answers mailbag episode, hosts Alison Southwick and Robert Brokamp — with help from Megan Brinsfield, director of Foolish Planning with our sister company, Motley Fool Wealth Management — offer some advice to a retired listener who is planning ahead. He and his wife have a reasonable-sized IRA, and he’d like to ensure that when those assets get handed down, their heirs are in the best tax position possible. “Nice thought,” respond our experts, “and we can help you with that. But you may just want to rethink your priorities.”
A full transcript follows the video.
This video was recorded on March 26, 2019.
Alison Southwick: Next question comes from William. “I’m almost 69, and between my wife and me we receive $21,000 from a pension and $28,000 from Social Security each year. Our IRA is valued at $130,000 and we have other investments also worth $130,000.
Southwick: They’ll never appreciate it.
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Discuss A Postnuptial Agreement
To use a prenuptial agreement, you have to put it in place prior to the I doâs. If youâve passed this point, it is possible to have your child and his or her spouse sign a postnuptial agreement. These are similar to prenups except that postnups are put in place after marriage. As such, they can lead to a tricky family conversation â but it may be worth it to make sure the plans for your assets are carried out.
If youâre looking into any of these options, itâs important to work with a qualified attorney to ensure the agreements are worded properly based on your wishes. A financial advisor can work with you to ensure the financial tools youâre using are best suited to help you reach your financial goals.
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Have Your Child Establish A Prenuptial Agreement
Prenuptial agreements donât carry the same type of stigma they may have had in the past. In fact, more and more young people are signing prenuptial agreements.
Prenups can cover a variety of financial situations, such as verifying what assets each person brings into the marriage to detailing what will happen to future inherited assets. Including the wealth that you plan to pass on to your child in a prenuptial agreement can give you peace of mind that the assets you leave to your child will stay with your child.
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Will Taxes Be Withheld From My Distribution
- IRAs: An IRA distribution paid to you is subject to 10% withholding unless you elect out of withholding or choose to have a different amount withheld. You can avoid withholding taxes if you choose to do a trustee-to-trustee transfer to another IRA.
- Retirement plans: A retirement plan distribution paid to you is subject to mandatory withholding of 20%, even if you intend to roll it over later. Withholding does not apply if you roll over the amount directly to another retirement plan or to an IRA. A distribution sent to you in the form of a check payable to the receiving plan or IRA is not subject to withholding.
Why Move The Plan To Canada
Reasons may include:
- consolidating investment management and advisory services to one country to simplify affairs, save money on professional fees and bring peace of mind
- mitigating currency risk and the impact of investment restrictions that may be imposed on non-residents and
- reducing exposure to U.S. estate tax, because U.S.-based retirement plans are considered U.S. situs assets for estate tax purposes. U.S. estate tax is assessed on value, not gain, at the same graduated rates that apply to U.S. persons.
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If You Expect Your Tax Rate To Increase In The Future
Do you need the money now? If yes, consider taking a lump sum. Also, if you’ve been laid off or suffered a big pay cut, you might need the cash. But if you don’t need the money right away, and still want to pay the tax while youre in a lower tax bracket, you can reinvest the proceeds in a brokerage account. Another option could be to convert an inherited 401 to an inherited Roth IRA. This option is unique for beneficiaries of 401 plans individuals who inherit a traditional IRA aren’t permitted. Although you could potentially avoid a big taxable event later by paying now, youll still need to take the funds within 10-years.
What Happens If I Dont Make Any Election Regarding My Retirement Plan Distribution
The plan administrator must give you a written explanation of your rollover options for the distribution, including your right to have the distribution transferred directly to another retirement plan or to an IRA.
If youre no longer employed by the employer maintaining your retirement plan and your plan account is between $1,000 and $5,000, the plan administrator may deposit the money into an IRA in your name if you dont elect to receive the money or roll it over. If your plan account is $1,000 or less, the plan administrator may pay it to you, less, in most cases, 20% income tax withholding, without your consent. You can still roll over the distribution within 60 days.
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