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Will My Kids Inherit My Roth IRA Tax-Free? - YMYW podcast - YouTube
Channel: Your Money, Your Wealth
[4]
We have a phone message.
[9]
Let's see what we got there.
[10]
Rob: "Yeah I had a question there.
[13]
Joe was saying that the Roth is passed on
to your kids tax-free.
[19]
I was told by my tax accountant that no, it
is not passed on to your kids tax-free, only
[25]
to your spouse.
[26]
See if they can clear that up for me, that's
a big question mark for me, all right?
[30]
Thanks.
[31]
This is Rob and I live in Ohio, OK?
[34]
Thanks."
[35]
Rob from Ohio.
[37]
Appreciate your call.
[39]
Here's my advice to you: I would fire your
tax account, because he doesn't know what
[43]
he's talking about.
[44]
Fair enough.
[46]
(laughs) So it is tax-free to your kids, and
if your kids still have a balance when they
[51]
pass to their kids, it's tax-free to them as well.
[55]
Now, what the accountant could be thinking
is estate tax, and none of these accounts
[60]
are estate-tax-free.
[61]
In other words, if you have more than $11.4
million in assets and you pass away, whether
[68]
it's a Roth...
[69]
And Rob if you're married, if you got $22
million, then the Roth might be taxed.
[75]
But it's not income tax, it's an estate tax.
[79]
You're giving the account the benefit of the doubt.
[81]
You're trying.
[82]
I'm standing up for my accountants.
[83]
You're standing up for your brethren.
[84]
I am.
[86]
But my guess is that's where the confusion came.
[89]
No way.
[90]
I'm telling you right now, this accountant
doesn't know what he's talking about.
[93]
Well I know that.
[95]
But I'm just trying to figure out why he would
have said that, because it's so clearly a
[99]
false statement.
[101]
The Roth, once the once the money goes into
a Roth, it's tax-free.
[104]
I think there are a lot of individuals that
really don't know this stuff.
[107]
Even accountants, apparently.
[110]
Right. A lot of accountants don't even know what
Roth IRAs are.
[113]
No offense, because they're doing the tax return.
[116]
No planning.
[117]
And so if I'm doing a Roth contribution Alan,
and you're my CPA, you look at my tax return,
[126]
I give you my stuff, are you going to ask
me, "did you make a Roth IRA contribution?"
[131]
Well, I need to, because if you make too much
money it's disallowed.
[135]
So I'm supposed to. (laughs) OK.
[138]
But you look at my tax return.
[139]
I'm not even filing a tax return this year,
because I make less than $12,000.
[143]
But let's assume I made $15,000 because this
podcast has taken off.
[148]
(laughs) You've got a 50% raise?
[150]
So if I file my return and you already know,
let's say, I don't qualify for a Roth - an
[156]
account is not going to ask.
[157]
Yeah.
[158]
Well if I know your income is well below the
limits, then I don't need to know.
[162]
Right.
[163]
And then are you going to ask me, "hey, thanks
a lot for all your information that you're
[168]
giving me, by the way can I get your Roth
IRA a statement?"
[171]
No, of course not.
[172]
The only way you would do that if you were,
like, also an insurance salesman/CPA. (laughs)
[178]
(laughs) True.
[181]
Especially for a Roth, there's no reason to ever get it.
[184]
Right.
[185]
Because it's an after-tax contribution, it
grows 100% tax-free.
[189]
And when you pass away it's tax free to the heirs.
[192]
To anyone.
[193]
So the CPA was probably just - or the tax
accounant or whoever it is - is confused on
[199]
tax law, period.
[201]
Because it's like, "no it could go to your
spouse but it goes your kids?"
[204]
I guarantee you this is what happened.
[206]
"No, I don't think that's right."
[208]
And so the guy leaves, calls Joe and Big Al,
and then the CPA looks it up and was like,
[212]
"oh shoot!
[213]
Damn it!
[214]
I think, oops, I made a mistake!"
[216]
He asked his buddy down the hall.
[218]
"Hey Rob!
[219]
This is Mr. Accountant again."
[221]
(laughs) "I might have given you the wrong
answer."
[224]
Or maybe he just was, "eh, don't worry about it."
[227]
Another story, dude.
[228]
"Dude." (laughs)
[229]
Sorry, didn't mean to call you dude. (laughs)
[232]
That's all right, that's endearing, I think.
[235]
All right.
[236]
So I was teaching a class at Southwestern
College in San Diego, California.
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It's in Chula Vista.
[242]
Awesome, I always love teaching down there.
[246]
Usually a lively group, they like to have
a lot of fun.
[249]
And so we're going through tax diversification,
here's what an IRA is, here's what non-qualified
[256]
account is, here's what a Roth is.
[258]
Here's how these accounts are taxed.
[259]
Here's how you can invest in them.
[261]
Here's how they get money into them and so
on and so forth.
[264]
And so one gentleman was like, "wow, I have
all my money in a retirement account, maybe
[269]
a Roth might make some sense for me."
[272]
So it's a two part class.
[274]
He comes back, he's like, "yeah man, my accountant
shot that one down."
[281]
And I was like, "OK well, what do you mean?"
[284]
And he goes, "yeah, what the account said,
it doesn't make any sense for me."
[288]
I said, "oh OK, well you know, that's fine."
[291]
I don't know anything about this gentleman.
[293]
Right, you're throwing out ideas.
[295]
Yeah.
[296]
Just, hey, well if it doesn't work, it doesn't work.
[297]
All right.
[298]
Well then, you could try this do this, do this.
[300]
There's a thousand other things that you could
potentially do.
[303]
So he ends up coming into the office.
[307]
Allegedly.
[308]
And he goes, "hey, I've been with my advisor
for a long time, and really like my advisor,
[318]
and she kind of put the kibosh on the on the
whole Roth IRA deal."
[324]
And I was like, "Oh OK."
[325]
So he shows me the email.
[326]
And he's like, "hey, I was talking to some
people, and maybe it might make sense for
[331]
me to contribute a little bit of my 401(k)
to the Roth 401(k), just to get a little bit
[336]
more tax diversification.
[337]
What are your thoughts?"
[339]
And so the question that he asked her was,
maybe I put a couple percent of my 401(k)
[346]
contributions into the Roth part.
[348]
I wish I had the email here.
[350]
She's like, "well, I don't want to be sassy
here, but you tell your accountant friends
[356]
to stay in their lane."
[357]
(laughs) Really?
[359]
Yes.
[360]
And then went on to say all these faults.
[362]
It was like, "first of all, you don't qualify
to do a Roth."
[364]
I'm like, okay 401(k)s, there is no income limitation!
[369]
You can make a million dollars a year, if
you want to put money into a Roth 401(k)?
[372]
By all means, put money into the Roth 401(k).
[374]
Right.
[375]
So that was first wrong.
[376]
And then "your income is is too high."
[381]
His AGI was $68,000.
[384]
Married.
[385]
It's below the contribution limit as well.
[388]
His taxable income was 40 grand.
[391]
Because he had just started a small business
and all of this kind of carried over, so he
[395]
had a lot more deductions.
[397]
So he's in the low 12% tax bracket.
[400]
And then it's like OK well, you stay in your lane!
[404]
(laughs) You get in the right lane.
[406]
Get in the right lane or do some studying!
[409]
I hate bashing other - but I mean, come on.
[412]
You know, I feel bad for Rob.
[414]
The tax guy is saying no, the thing doesn't
pass to the...
[418]
Well good for you Al.
[420]
I try to stick up for 'em.
[422]
Your glass half full and I'm half empty.
[425]
You're my yin to my yang.
[430]
OK...
[431]
I guess that's good... (laughs)
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