Look into purchasing a Qualified Life Annuity Contract with the maximum allowed of $210,000 ($420,000 if married). That defers a fraction of the RMDs.

I am torn on IRA's because everything that comes out gets taxed at ordinary rates; including growth in share prices of the holdings. Put as much as possible / tolerable into a Roth is a great step.

https://www.schwab.com/annuities/deferred-income-annuities

Lol

2wealfth Man said:

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Look into purchasing a Qualified Life Annuity Contract with the maximum allowed of $210,000 ($420,000 if married). That defers a fraction of the RMDs.

I am torn on IRA's because everything that comes out gets taxed at ordinary rates; including growth in share prices of the holdings. As much as possible / tolerable into a Roth is a great step.

https://www.schwab.com/annuities/deferred-income-annuities

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Could you elaborate a bit on this? Are you saying you aren't always a fan of maxing out IRAs?

As a physician, I highly value the ERISA protection that contributing to a Qualified account gives. That being said, I am also reaching the latter years of work and am also a bit worried about building a "Tax Bomb" for my estate to deal with.

I will probably quit working within 3 years, and then have another 10-11 years before RMDs take effect. If I did nothing and my IRAs grew at 7% until such time, I would be into OP's parent's territory, which I wouldn't want to leave unaddressed for the next generation. How good is Boldin software at figuring out the net tax effects of Roth conversions, or are there other (better) softwares? I will have some passive income to fill in the lower tax brackets once I retire, so I won't exactly "drop off of a cliff" and create a perfect Roth conversion window. This stuff gets complicated.

I'm also in the group that cautions against thinking trusts are the best way. Sometimes they are. But there are any number of ways where they can end up a major pain in the ass or possibly even trigger more taxes ultimately. And I'd be very leery of using one when this individual seems somewhat stubborn and resistant to advice. What you don't want is some half-measure trust where she follows some advice but not all.

The parent is 80.

I didn't read all the responses, but at 80, they're already in RMD. If they do live 20 more years, it should be empty. Otherwise, it's taxed at your rate over ten years. At $500k/year they are already at max tax and they should be above that at 80 with over $10 m when including SS. They can convert it all into a Roth at this point.

I run a Roth conversion calculator for several different scenarios. It takes all taxes in consideration and IRMAA (health care premiums). There are extra taxes once going over certain income limits, so it is important to take all into consideration when running multiple scenarios per family.

One very common thing is it almost always recommends to convert a lot in the first 2-6 years. I have seen it tell me that converting well into the 37% tax bracket saved the most taxes in the long run due to reduction in other taxes like IRMAA and NIIT.

At 80, it isn't as pressing to convert all, but if they live to 95-100, then it may. Also, if one of your parent passes soon and the other lives long, you are likely to be better off converting a lot soon.

I always pose it as do you want to give some money to the IRS or to your heirs or charity?

Maxifi is the one that is the best for analyzing but you would need some info to run it. Tax return and financial statements will do it.

Pretty sure you said most of this was in an IRA.

Keep in mind that this coming to you likely means more to the IRS than them. Also, it could create a huge tax problem for you because your personal IRAs may get too large due to not using them for those 10+ yrs.

If I am you, it would be hard to bring any of this up. I do seem to find most parents will consider listening if phrased like "I was watching a show/speech/podcast about large tax problems with IRAs and how to avoid a large amount of those taxes by proper tax planning. It was saying that most give more to the IRS than they had to and that money could have stayed with the family or gone to the charity. "

Too lazy to go back and check for comprehension, so feel free to PM me.

Charismatic Megafauna said:

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I'm pretty sure her willingness to participate in this exercise is key

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This. If the parent is not willing to discuss this, let it go and suck up the taxes later.

The best way to approach the subject is, assuming you're the one to handle their will/estate, is to broach the subject as "what exactly do you want to happen when you pass". Like, you want the grandkids to get this, charity to get that, etc. and try and bring up how to best maximize that giving/legacy without pissing them off.

If they want to leave some to grandkids for college/trade school, mention they can convert chartable giving now and minimize their taxes while still meeting the RMD's each year and reduce what Uncle Sam takes each year. They can still control the money (529 with them as custodian - I think).

Enrico Pallazzo said:

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The main issue is that at 80, the Roth conversion/RMD minimization ship has sailed. Get some tax lawyer advice, but if she isn't willing to participate, you are probably wasting time, money, and possibly straining the relationship in this last stretch of years every time you bring it up. And again, there's only so much that can be done there because it's already too late. My advice would be to invest your energy into your own tax planning assuming the status quo remains with her.

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This is pretty spot on. Taxes will be due on these funds and 10% of $8M (Bene IRA RMD) still gets you into the top tax bracket. Qualified Charitable Distributions should be used for every single charitable contribution up to the limit. This move alone (assuming she gives away that much) will save more than $32k per year in tax.

If she is as healthy as you say, and multi year life expectancy is likely, I could make the case that one mega conversion right now gives the most benefit.

My assumptions are: RMD will keep her at or near the top tax bracket for remainder of her life, Beneficiary IRA RMD will keep you in top bracket for 10 years, you are nearing Medicare age, and tax rates will go back up again at some point in next 10-20 years.

Convert $10M this year, pay around $4M in taxes and have outrageous medicare premiums (IRRMA) for next year (she is likely already paying much higher than minimums). Thereafter, assume account doubles again every 10 years in a 60/40 portfolio, but all cash needs are covered with after tax Roth dollars. Marginal bracket going forward is sharply less, and medicare premiums at minimum. Even if she dies early, the inheritance can be placed in a Bene Roth for 10 years to produce very large tax free benefit.

Downside is, of course, a huge tax bill in year of conversion, but these funds will almost certainly be taxed near the top bracket, so she is simply growing the tax liability for a future tax bomb that could get worse if tax laws become more onerous.

Enrico Pallazzo said:

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I'm also in the group that cautions against thinking trusts are the best way. Sometimes they are. But there are any number of ways where they can end up a major pain in the ass or possibly even trigger more taxes ultimately. And I'd be very leery of using one when this individual seems somewhat stubborn and resistant to advice. What you don't want is some half-measure trust where she follows some advice but not all.

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IRAs and Roth IRAs don't go into trusts. Home, land, maybe non-qualified assets, but not IRAs. This isn't much of an estate planning case, rather its a tax planning case. A very strategic CPA or tax lawyer could help. I would ask a tax lawyer about naming subsequent generations as beneficiaries--grands and great-grands--because their 10 year RMD clock doesn't start until they turn 18.

And who is the best tax lawyer that yall have used

I am in BCS but that does not matter we can drive to any area

Sam Buford is in Austin.

https://liberalarts.tamu.edu/blog/sam-buford-68-a-successful-lawyer-with-a-passion-for-liberal-arts/

https://nancesimpson.com/profiles/glynn-d-nance-jr/

Glynn has done good work for me in Houston for various business issues. LLM in Taxation.

Thanks