taxfree estate ??

Hypothetical situation: Happy, healthy couple has potential estate valued at over $2 million, wanting to bequeath proceeds (whatever it's called) to children for the benefit of grandchildren (each child has some children). The major portions of liquid/semiliquid funds are in IRA-type accounts (IRA, Roth, 403b7). Advice was given that even via trusts, the proceeds would count as income to the recipients, and thus would be subject to income tax, even if not subject to US or NJ estate taxes. One suggested alternative would be to set up life insurance policies with the grandchildren as beneficiaries. I'm asking for comments and alternative suggestions, including links to trusted web sites before the official TIAA advice will come in. Thanks in advance!

-- Best regards Han email address is invalid

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Reply to
Han
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True enough, the funds were likely never taxed when contributed (i.e. deductible IRA or tax-deferred employer plan) so someone has to pay the income taxes when funds are withdrawn after death. On what schedule, depends on the ages of the beneficiaries and whether or not the decedents had reached their RBD (generally age 70-1/2 or above). The Roth IRA would probably be TAX-FREE if it had been in existence for more than 5 years and the decedent taxpayer was over age

59-1/2 (qualified distribution). If not, withdrawal of contributions will be tax-free, but there may be tax due when the earnings are withdrawn.

The taxpayer can always buy life insurance and name the grandchildren as beneficiaries. Using the IRA funds to buy or pay the premiums for these policies would be a "prohibited transaction" and would immediately invalidate the tax-deferred status of the IRA.

Reply to
Herb Smith

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