So Tommie, what I am wondering is

[crondanet5]

is it good to have a million dollars in your TSP Account? With the changing tax rules and time permitted to withdraw is it wise to stash it in a tax deferred program? What should be the cutoff of money contributed to 401k's and then where should the rest be invested? Any ideas?

[Tomanyiron]

A million is good, but you need two million. One million to invest, and another million to pay someone who is smart enough to answer these questions.
Seriously, this is more in your area of expertise than mine.

[crondanet5]

Not really. Things have changed. Taxwise. Hopefully a member on this site can spell it out for us. Example: You create a million dollar TSP Account Balance. You listen to those who urge not touching it until the Minimum Required Distribution kicks in. So you take the MRD for fifteen years and you are now 86. That is average life expectancy in US. What do you do? Please everyone, don't give me the "I'm going to spend it all before I die" comment. You do not know when you will die. So prepare for it. What does your will say? Children? Relatives? The last nurse who took care of you? And how do we greedily protect every dollar from going to pay taxes? How do we protect our children or whomever else from being whacked with a huge tax to pay on mandatory withdrawal in five years? I think that is the new time period for inherited 401k's. Does everyone see what I am trying to say? Would it be better to stop at $500,000 and create taxable accounts that use funds equivalent to those in TSP so the money in the account is not taxable? Comments anyone on a quiet July weekend?

[ArrieS]

What does your will say? Children? Relatives? The last nurse who took care of you? And how do we greedily protect every dollar from going to pay taxes? How do we protect our children or whomever else from being whacked with a huge tax to pay on mandatory withdrawal in five years?

Boohoo, they got hit by taxes for money they didn't earn. The best time to pay a tax is when you're dead.

Besides me not feeling sorry for someone paying taxes on money they didn't earn, they have to be the beneficiaries you name for the plan—not by your will.

Money from a TSP to a non-spouse will be made directly to the beneficiary or to an "inherited" IRA.

This is from the IRS website (https://www.investopedia.com/terms/i/inherited_ira.asp

Generally, the entire interest in a Roth IRA must be distributed by the end of the fifth calendar year after the year of the owner's death unless the interest is payable to a designated beneficiary over the life or life expectancy of the designated beneficiary.

If paid as an annuity, the entire interest must be payable over a period not greater than the designated beneficiary's life expectancy and distributions must begin before the end of the calendar year following the year of death. Distributions from another Roth IRA cannot be substituted for these distributions unless the other Roth IRA was inherited from the same decedent.

That's for a ROTH IRA. Traditional is different.

The IRS generally requires non-spouse inherited IRA owners to start taking required minimum distributions (RMDs) beginning December 31 after the year of death of the original account owner, and each year thereafter.

I believe if you speak to an expert if the inheritor starts withdrawals based on their life expectancy they don't have to have it drained in 5 years.

I read an article about this on seeking alpha. You can try searching for it, I couldn't find it again.

But the premise was, that if each generation wasn't greedy, because of the minimum distribution being so low if a child inherits it at a young age below 50, it will be below the 10% average return of the stock market that it will continue to grow.

In other words, if you trust every generation that comes not to decide to take it all in 5 years, it will snowball into Rockefeller level wealth.

Or, you could create a Dynasty Trust.

[bamablue]

Taxes are a 3d rail and often lead to political discord; There is enough polarization in our daily lives, I'm not going there... I do have strong feelings about paying taxes after death from the standpoint of equity and fairness. It's true that the earnings of one individual are the fruit of their labor. Leaving behind money for someone else is a gift to someone who (in most cases) has not participated in the earning of that money. When a decedent makes the decision to bequeath their money to someone else, a good assumption is that the taxes have been paid in full. The obligation to support the Government has been met. Why should the State/Federal Government get another bite of the apple?

A similar situation exists in current tax law. I have a self-inflicted habit of overpaying my State taxes. I get my money back from the State, because I gave them too much. Taxes are fully paid for that money and I loose the time-value of that money. Well... the next tax year, I have to declare that State tax returned to me as income....

It just doesn't make sense or seem 'fair' to me, to double-tax people in life or in death.

[ArrieS]

It just doesn't make sense or seem 'fair' to me, to double-tax people in life or in death.

Okay, but the estate tax hits roughly 0.2% of Americans, or 1 out of every 500 people who die.

So 99.8% don't pay that tax.

But it's also not double taxation. The money in the IRA is suppose to be taxed when it's withdrawn, regardless of who it was suppose to be paid to. The agreement entered into when you opened an IRA or any retirement account was that it would grow tax free until withdrawal. If you withdraw it, it's taxed, if they withdraw it, it's taxed. No change in the agreement except they had to immediately start taking it out or space it out the payments because it is an Individual Retirement Account. It was created for the benefit of one person (also a spouse). It wasn't created for families. That's the agreement you entered into when you opened it up, tax deferral until withdrawal.

Guess what, if the money comes from a ROTH IRA it's still tax free for them to. The Government is keeping it's word.

The tax law is the same for you as it is for whoever inherits it.

[bamablue]

The money from an IRA is (and should be) taxed accordingly. I'm 100% in agreement with you. I should have been more focused in my perspective. My point involved taxing accumulated wealth (post-taxed assets and savings) where taxes have been fully accounted for.

[ArrieS]

The money from an IRA is (and should be) taxed accordingly. I'm 100% in agreement with you. I should have been more focused in my perspective. My point involved taxing accumulated wealth (post-taxed assets and savings) where taxes have been fully accounted for.

Fair enough.

But, that raises another point. If you had $11.8 per person to leave as inheritance. Where do you think it is? Are you leaving it in a savings account?

I doubt anyone who has that type of money has left it in a savings account no matter how good the yield is.

So that leaves us with asking where is the money? Undoubtedly invested. If you were alive, you would have to sell those investments, or gift them directly, which would be a taxable event. Taxes on gains.

If you're dead, those investments need to be sold, or given directly, taxable event. Same as if you were alive.

The only thing is, if you kept it yourself, didn't give it away, and died it's only a taxable event if the money is over $11.8 million dollars, as opposed to $15,000 if you are still alive.

[evilanne]

But the premise was, that if each generation wasn't greedy, because of the minimum distribution being so low if a child inherits it at a young age below 50, it will be below the 10% average return of the stock market that it will continue to grow.

In other words, if you trust every generation that comes not to decide to take it all in 5 years, it will snowball into Rockefeller level wealth.

This won't work with inherited IRAs. Although it may continue to grow, as they get older the RMD increases. If you inherit and IRA and designate a beneficiary, once you die, the beneficiary has to use the same factor that you were using. It is designed to be spent in a person's life time.

[ArrieS]

But the premise was, that if each generation wasn't greedy, because of the minimum distribution being so low if a child inherits it at a young age below 50, it will be below the 10% average return of the stock market that it will continue to grow.

In other words, if you trust every generation that comes not to decide to take it all in 5 years, it will snowball into Rockefeller level wealth.

This won't work with inherited IRAs. Although it may continue to grow, as they get older the RMD increases. If you inherit and IRA and designate a beneficiary, once you die, the beneficiary has to use the same factor that you were using. It is designed to be spent in a person's life time.

Here is the article, but now it is behind a pay wall. So if anyone is a subscriber feel free to read it.

https://seekingalpha.com/article/405672 ... eps-giving

[Scarfinger]

So we got side tracked by a tax discussion. But what advice does anyone have for the OP. What needs to be set up before death to make it easier on the beneficiaries is the basic premise of the post?

is it good to have a million dollars in your TSP Account? With the changing tax rules and time permitted to withdraw is it wise to stash it in a tax deferred program? What should be the cutoff of money contributed to 401k's and then where should the rest be invested? Any ideas?

Has anyone ever talked to an estate planner? Or who does a person need to talk to regarding the above question?

[evilanne]

There is not an answer that would fit every situation--there are many factors. A lot depends on who will be surviving you and who your beneficiary(ies) is(are). Tax deferred plans are set up for you to spend during your life time if you look at the RMDs. A spouse beneficiary can treat the account as their own. Non spouse beneficiaries have different rules but I would suggest they roll over into an inherited IRA and take RMDs so that they don't get hit with huge tax bill all at once. There may be different tax considerations if you live somewhere that has State Income Tax vs a State that does not.

You can always consult with a financial or tax advisor based on your specific situation. You can only contribute earned income, so once you retire you won't be able to contribute. RMDs begin at age 71.5 so I don't see much reason to continue contributing in your 70's but I think you should have a withdrawal plan and possibly a conversion plan (Traditional to Roth) after retirement when your income is lower.