Should I have a Charitable Trust in My Estate Plan? – Annapolis and Towson Estate Planning

Charitable trusts can be created to provide a reliable income stream to you and your beneficiaries for a set period of time, says Bankrate’s recent article entitled “What is a charitable trust?”

Establishing a charitable trust can be a critical component of your estate plan and a rewarding way to make an impact for a cause you care deeply about. There are a few kinds of charitable trusts to consider based on your situation and what you may be looking to accomplish.

Charitable lead trust. This is an irrevocable trust that is created to distribute an income stream to a designated charity or nonprofit organization for a set number of years. It can be established with a gift of cash or securities made to the trust. Depending on the structure, the donor can benefit from a stream of income during the life of the trust, deductions for gift and estate taxes, as well as current year income tax deductions when the assets are donated to the trust.

If the charitable lead trust is funded with a donation of cash, the donor can claim a deduction of up to 60% of their adjusted gross income (AGI), and any unused deductions can generally be carried over into subsequent tax years. The deduction limit for appreciated securities or other assets is limited to no more than 30% of AGI in the year of the donation.

At the expiration of the charitable lead trust, the assets that remain in the trust revert back to the donor, their heirs, or designated beneficiaries—not the charity.

Charitable remainder trust. This trust is different from a charitable lead trust. It is an irrevocable trust that is funded with cash or securities. A CRT gives the donor or other beneficiaries an income stream with the remaining assets in the trust reverting to the charity upon death or the expiration of the trust period. There are two types of CRTs:

  1. A charitable remainder annuity trust or CRAT distributes a fixed amount as an annuity each year, and there are no additional contributions can be made to a CRAT.
  2. A charitable remainder unitrust or CRUT distributes a fixed percentage of the value of the trust, which is recalculated every year. Additional contributions can be made to a CRUT.

Here are the steps when using a CRT:

  1. Make a partially tax-deductible donation of cash, stocks, ETFs, mutual funds or non-publicly traded assets, such as real estate, to the trust. The amount of the tax deduction is a function of the type of CRT, the term of the trust, the projected annual payments (usually stated as a percentage) and the IRS interest rates that determine the projected growth in the asset that is in effect at the time.
  2. Receive an income stream for you or your beneficiaries based on how the trust is created. The minimum percentage is 5% based on current IRS rules. Payments can be made monthly, quarterly or annually.
  3. After a designated time or after the death of the last remaining income beneficiary, the remaining assets in the CRT revert to the designated charity or charities.

There are a number of benefits of a charitable trust that make them attractive for estate planning and other purposes. It is a tax-efficient way to donate to the charities or nonprofit organizations of your choosing. The charitable trust provides benefits to the charity and the donor. The trust also provides upfront income tax benefits to the donor, when the contribution to the trust is made.

Donating highly appreciated assets, such as stocks, ETFs, and mutual funds, to the charitable trust can help avoid paying capital gains taxes that would be due if these assets were sold outright.  Donations to a charitable trust can also help to reduce the value of your estate and reduce estate taxes on larger estates.

However, charitable trusts do have some disadvantages. First, they are irrevocable, so you cannot undo the trust if your situation changes, and you were to need the money or assets donated to the trust. When you establish and fund the trust, the money is no longer under your control and the trust cannot be revoked.

A charitable trust may be a good option if you have a desire to create a legacy with some of your assets. Talk with an experienced estate planning attorney about your specific situation.

Reference: Bankrate (Dec. 14, 2021) “What is a charitable trust?”

 

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Can Estate Planning Reduce Taxes? – Annapolis and Towson Estate Planning

With numerous bills still being considered by Congress, people are increasingly aware of the need to explore options for tax planning, charitable giving, estate planning and inheritances. Tax sensitive strategies for the near future are on everyone’s mind right now, according to the article “Inheritance, estate planning and charitable giving: 4 strategies to reduce taxes now” from Market Watch. These are the strategies to be aware of.

Offsetting capital gains. Capital gains are the profits made from selling an asset which has appreciated in value since it was first acquired. These gains are taxed, although the tax rates on capital gains are lower than ordinary income taxes if the asset is owned for more than a year. Losses on assets reduce tax liability. This is why investors “harvest” their tax losses, to offset gains. The goal is to sell the depreciated asset and at the same time, to sell an appreciated asset.

Consider Roth IRA conversions. People used to assume they would be in a lower tax bracket upon retirement, providing an advantage for taking money from a traditional IRA or other retirement accounts. Income taxes are due on the withdrawals for traditional IRAs. However, if you retire and receive Social Security, pension income, dividends and interest payments, you may find yourself in the enviable position of having a similar income to when you were working. Good for the income, bad for the tax bite.

Converting an IRA into a Roth IRA is increasingly popular for people in this situation. Taxes must be paid, but they are paid when the funds are moved into a Roth IRA. Once in the Roth IRA account, the converted funds grow tax free and there are no further taxes on withdrawals after the IRA has been open for five years. You must be at least 59½ to do the conversion, and you do not have to do it all at once. However, in many cases, this makes the most sense.

Charitable giving has always been a good tax strategy. In the past, people would simply write a check to the organization they wished to support. Today, there are many different ways to support nonprofits, allowing for better tax advantages.

One of the most popular ways to give today is a DAF—Donor Advised Fund. These are third-party funds created for supporting charity. They work in a few different ways. Let’s say you have sold a business or inherited money and have a significant tax bill coming. By contributing funds to a DAF, you will get a tax break when you put the funds into a DAF. The DAF can hold the funds—they do not have to be contributed to charity, but as long as they are in the DAF account, you receive the tax benefit.

Another way to give to charity is through your IRA’s Required Minimum Distribution (RMD) by giving the minimum amount you are required to take from your IRA every year to the charity. Otherwise, your RMD is taxable as income. If you make a charitable donation using the RMD, you get the tax deduction, and the nonprofit gets a donation.

Giving while living is growing in popularity, as parents and grandparents can have pleasure of watching loved ones benefit from the impact of a gift. A person can give up to $16,000 to any other person every year, with no taxes due on the gift. The money is then out of the estate and the recipient receives the full amount of the gift.

All of these strategies should be reviewed with your estate planning attorney with an eye to your overall estate plan, to ensure they work seamlessly to achieve your overall goals.

Reference: Market Watch (Feb. 18, 2022) “Inheritance, estate planning and charitable giving: 4 strategies to reduce taxes now”

 

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Will My Social Security Benefits Be Taxed? – Annapolis and Towson Estate Planning

Money Talks News’ recent article entitled “These 13 States Tax Social Security Income” says the federal government can tax plenty of types of retirement income — including Social Security benefits.

The taxation does not necessarily stop with the federal government because there are a number of state governments that also expect a cut from your Social Security income. In fact, there are 13 states that tax Social Security benefits:

  • Colorado
  • Connecticut
  • Kansas
  • Minnesota
  • Missouri
  • Montana
  • Nebraska
  • New Mexico
  • North Dakota
  • Rhode Island
  • Utah
  • Vermont
  • West Virginia

Whether your Social Security retirement benefits are subject to federal income taxes is determined by your tax filing status and what the U.S. Social Security Administration calls your “combined income.” This is your wages and self-employment income, interest and dividends and other taxable income. If your benefits are subject to federal taxes, the federal government will tax up to 85% of your benefits.

States that tax Social Security benefits do so according to their own rules, which can vary from state to state and differ from the federal tax code. Therefore, even if your benefits are not subject to federal taxes, they could still be subject to state income taxes — or vice versa. It depends on how a state taxes income and whether it offers any tax breaks that apply to Social Security income.

For example, Connecticut offers some residents a full exemption from state income tax for benefits. These residents pay no taxes on Social Security income, if one of the following situations applies: (i) their federal filing status is single or married filing separately, and their federal adjusted gross income is less than $50,000; or (ii) their federal filing status is married filing jointly, head of household or qualifying widow/widower and their federal adjusted gross income is less than $60,000.

Reference: Money Talks News (Sep. 22, 2021) “These 13 States Tax Social Security Income”

 

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What to Do with an Inherited IRA? – Annapolis and Towson Estate Planning

Most of us do not have to worry about paying federal estate taxes on an inheritance. In 2021, the federal estate tax does not apply, unless an estate exceeds $11.7 million. The Biden administration has proposed lowering the exemption, but even that proposal would not affect estates valued at less than about $6 million. However, you should know that some states have lower thresholds.

Kiplinger’s recent article entitled “Minimizing Taxes When You Inherit Money” says that if you inherit an IRA from a parent, taxes on mandatory withdrawals could leave you with a smaller legacy than you anticipated. With IRAs becoming more of a significant retirement savings tool, there is also a good chance you will inherit at least one account.

Prior to last year, beneficiaries of inherited IRAs (or other tax-deferred accounts, such as 401(k) plans) were able to move the money into an account known as an inherited (or “stretch”) IRA and take withdrawals over their life expectancy. They could then minimize withdrawals which are taxed at ordinary income tax rates and allow the untapped funds to grow. However, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 stopped this. Most adult children and other non-spouse heirs who inherit an IRA on or after January 1, 2020, now have two options: (i) take a lump sum; or (2) transfer the money to an inherited IRA that must be depleted within 10 years after the death of the original owner.

Note that this 10-year rule does not apply to surviving spouses. They are allowed to roll the money into their own IRA and allow the account to grow, tax-deferred, until they must take required minimum distributions (RMDs), which start at age 72. If it is a Roth IRA, they are not required to take RMDs. Another option for spouses is to transfer the money into an inherited IRA and take distributions based on their life expectancy. The SECURE Act also created exceptions for non-spouse beneficiaries who are minors, disabled or chronically ill, or less than 10 years younger than the original IRA owner. Any IRA beneficiaries who are not eligible for the exceptions could wind up with a big tax bill, especially if the 10-year withdrawal period coincides with years in which they have a lot of other taxable income.

Note that the 10-year rule also applies to inherited Roth IRAs. However, there is an important difference. You still deplete the account in 10 years. However, the distributions are tax-free, provided the Roth was funded at least five years before the original owner died. If you do not need the money, waiting to take distributions until you are required to empty the account will give up to 10 years of tax-free growth.

Heirs who simply cash out their parents’ IRAs can take a lump sum from a traditional IRA. However, if you do, you will owe taxes on the entire amount, which could push you into a higher tax bracket.

Reference: Kiplinger (Oct. 28, 2021) “Minimizing Taxes When You Inherit Money”

 

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How Much can You Inherit and Not Pay Taxes? – Annapolis and Towson Estate Planning

Even with the new proposed rules from Biden’s lowered exemption, estates under $6 million will not have to worry about federal estate taxes for a few years—although state estate tax exemptions may be lower. However, what about inheritances and what about inherited IRAs? This is explored in a recent article titled “Minimizing Taxes When You Inherit Money” from Kiplinger.

If you inherit an IRA from a parent, taxes on required withdrawals could leave you with a far smaller legacy than you anticipated. For many couples, IRAs are the largest assets passed to the next generation. In some cases they may be worth more than the family home. Americans held more than $13 trillion in IRAs in the second quarter of 2021. Many of you reading this are likely to inherit an IRA.

Before the SECURE Act changed how IRAs are distributed, people who inherited IRAs and other tax-deferred accounts transferred their assets into a beneficiary IRA account and took withdrawals over their life expectancy. This allowed money to continue to grow tax free for decades. Withdrawals were taxed as ordinary income.

The SECURE Act made it mandatory for anyone who inherited an IRA (with some exceptions) to decide between two options: take the money in a lump sum and lose a huge part of it to taxes or transfer the money to an inherited or beneficiary IRA and deplete it within ten years of the date of death of the original owner.

The exceptions are a surviving spouse, who may roll the money into their own IRA and allow it to grow, tax deferred, until they reach age 72, when they need to start taking Required Minimum Distributions (RMDs). If the IRA was a Roth, there are no RMDs, and any withdrawals are tax free. The surviving spouse can also transfer money into an inherited IRA and take distributions on their life expectancy.

If you are not eligible for the exceptions, any IRA you inherit will come with a big tax bill. If the inherited IRA is a Roth, you still have to empty it out in ten years. However, there are no taxes due as long as the Roth was funded at least five years before the original owner died.

Rushing to cash out an inherited IRA will slash the value of the IRA significantly because of the taxes due on the IRA. You might find yourself bumped up into a higher tax bracket. It is generally better to transfer the money to an inherited IRA to spread distributions out over a ten-year period.

The rules do not require you to empty the account in any particular order. Therefore, you could conceivably wait ten years and then empty the account. However, you will then have a huge tax bill.

Other assets are less constrained, at least as far as taxes go. Real estate and investment accounts benefit from the step-up in cost basis. Let us say your mother paid $50 for a share of stock and it was worth $250 on the day she died. Your “basis” would be $250. If you sell the stock immediately, you will not owe any taxes. If you hold onto to it, you will only owe taxes (or claim a loss) on the difference between $250 and the sale price. Proposals to curb the step-up have been bandied about for years. However, to date they have not succeeded.

The step-up in basis also applies to the family home and other inherited property. If you keep inherited investments or property, you will owe taxes on the difference between the value of the assets on the day of the original owner’s death and the day you sell.

Estate planning and tax planning should go hand-in-hand. If you are expecting a significant inheritance, a conversation with aging parents may be helpful to protect the family’s assets and preclude any expensive surprises.

Reference: Kiplinger (Oct. 29, 2021) “Minimizing Taxes When You Inherit Money”

 

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How Can I Pass Wealth to My Children and Grandchildren? – Annapolis and Towson Estate Planning

AARP’s recent article “6 Ways to Pass Wealth to Your Heirs” says that providing financial security to your heirs after you are gone is a goal you can reach in a number of ways.

Let us look at a few common options, along with their pluses and minuses:

  1. 401(k)s and IRAs. These grow tax-free while you are alive and will continue tax-free growth after your beneficiaries inherit them. Certain heirs, such as spouses and people with disabilities, can hold these accounts over their lifetime. Withdrawals from Roth IRAs and Roth 401(k)s are nearly always tax-free. However, other heirs not in those categories have to empty these accounts within 10 years.
  2. Taxable accounts. Heirs now get a nice tax break on investments that have grown in value over time. Say that years ago you bought stock for $300 that now trades for $3,000. If you sold it now, you would owe taxes on $2,700 in capital gains. However, if your son inherited the stock when it was trading at $3,000 and sold it at that price, he would owe no taxes on the sale. However, note that the Biden administration has proposed limiting the amount of investment capital gains free from taxes in this situation, which could impact wealthier families.
  3. Your home. If you own a home, it will typically be the most valuable non-financial asset in your estate. Heirs might not have to pay capital gains tax on it, if they sell it. However, use caution: whoever inherits the home will have to cover large expenses, such as upkeep and taxes.
  4. Term life insurance. This can be a great tool for loved ones who depend on your income or rely on your unpaid caregiving. You can get a lot of coverage for very little money. However, if you purchase plain-vanilla term insurance and do not die while the policy is in force, you do not get the money back.
  5. Whole life insurance. These policies provide a guaranteed death benefit for heirs and a cash-value component you can access for emergencies, long-term care, or other needs. However, these policies are more expensive than term insurance.
  6. Annuities. A joint-and-survivor annuity guarantees the survivor (your spouse, perhaps) a steady stream of income for life. Annuities with a death benefit can provide a lump sum for a beneficiary. However, while you are alive, annual fees for variable annuities can be high, limiting potential returns. Moreover, cashing in your annuity for a lump sum may be expensive or impossible.

Bonus Tip. Discuss your plans with your children sooner rather than later, especially if you are leaving them different amounts or giving a large sum to a favorite cause, so you have time to explain your rationale.

Reference: AARP (Sep. 9, 2021) “6 Ways to Pass Wealth to Your Heirs”

 

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When Should You Update Your Estate Plan? – Annapolis and Towson Estate Planning

Updating an estate plan is not usually the first thing on one’s mind when large life events occur. However, if you fail to update your estate plan, over time the plan may not work—for you or your loved ones. Reviewing estate plans at least once every three or four years will help to reach your goals and protect your family, explains the article “Do I Need to Update My Estate Plan?” from Arkansas Business.

Two key documents are used to distribute your assets: your last will and testament and trusts. As your children and other family members mature, those documents should change as may be needed.

If you have a revocable trust, you need to review the dispositive provisions and the trust funding. One of the biggest mistakes in estate planning, after failing to have an estate plan, is failing to fund or manage the funds in a trust.

Trusts are created to avoid probate and establish a process for distributing assets in case of disability or death. However, if assets are not retitled to be owned by the trust, or if the assets do not have an appropriate beneficiary designation to transfer assets to the trust at the time of your death, they will not perform as intended. As new assets are purchased, they also need to be incorporated into your estate plan.

Relationships you have with people who have responsibilities for your estate plan may change over time. Those need to be updated, including the following:

Trustee—The person or institution administering and managing a revocable trust, when you can no longer do so.

Guardian—The individual who will have legal authority and responsibility to raise your minor child(ren).

Executor—The person who is in charge of administering and managing your estate.

Health Care Agent—The person you authorize to make medical decisions in the event of incapacity.

Another common point of failure for estate plans: neglecting to update beneficiary designations for assets like life insurance, retirement plans and any asset that customarily passes to an heir through a beneficiary designation.

A regular review of your estate plan with your estate planning attorney also allows your plan to incorporate changes in tax laws. The last few years have seen many significant changes in tax laws, and more changes are likely in the future. Strategies that may have been extremely effective five or ten years ago are probably outdated and might create costs for your heirs. A review with an experienced estate planning attorney can prevent unnecessary tax liabilities, unexpected inheritances and family feuds.

Reference: Arkansas Business (Sep. 2021) “Do I Need to Update My Estate Plan?”

 

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Is a Rollover IRA a Good Idea? – Annapolis and Towson Estate Planning

In addition to an increase in rollovers, there has been an increase in the mistakes people make when transferring retirement funds as well, reports The Wall Street Journal in a recent article, “The Biggest Mistake People Make With IRA Rollovers.” These are expensive mistakes, potentially adding up to tens of thousands of dollars in taxes and penalties.

Done properly, rolling the funds from a 401(k) to a traditional IRA offers flexibility and control, minus paying taxes immediately. Depending on the IRA custodian, the owner may choose from different investment options, from stocks and bonds to mutual funds, exchange-traded funds, certificates of deposits or annuities. A company plan may limit you to a half-dozen or so choices. However, before you make a move, be aware of these key mistakes:

Taking a lump-sum distribution of the 401(k) funds instead of moving them directly to the IRA custodian. The clock starts ticking when you do what is called an “indirect rollover.” Miss the 60-day deadline and the amount is considered a distribution, included as gross income and taxable. If you are younger than 59½, you might also get hit with a 10% early withdrawal penalty.

There is an exception: if you are an employee with highly appreciated stock of the company that you are leaving in your 401(k), it is considered a “Net Unrealized Appreciation,” or NUA. In this case, you may take the lump-sum distribution and pay taxes at the ordinary income-tax rate, but only on the cost basis, or the adjusted original value, of the stock. The difference between the cost basis and the current market value is the NUA, and you can defer the tax on the difference until you sell the stock.

Not realizing when you do an indirect rollover, your workplace plan administrator will usually withhold 20% of your account and send it to the IRS as pre-payment of federal-income tax on the distribution. This will happen even if your plan is to immediately put the money into an IRA. If you want to contribute the same amount that was in your 401(k) to your IRA, you will need to provide funds from other sources. Note that if too much tax was withheld, you will get a refund from the IRS in April.

Rolling over funds from a 401(k) to an IRA before taking a Required Minimum Distribution or RMD. If you are required to take an RMD for the year that you are receiving the distribution (age 72 and over), neglecting this point will result in an excess contribution, which could be subject to a 6% penalty.

Rolling funds from a 401(k) to a Roth IRA and neglecting to pay taxes immediately. If you move money from a 401(k) to a Roth IRA, it is a conversion and taxes are due when you make the transfer. However, if you have some after-tax dollars left in the 401(k), you can make a tax-free distribution of those funds to a Roth IRA. Remember funds must remain in a Roth IRA for at least five years, before withdrawing any earnings or they will be subject to taxes and possibly penalties.

Not knowing the limits when moving funds from one IRA to another, if you do a 60-day rollover. The general rule is this: you are allowed to do only one distribution from an IRA to another IRA within a 12-month period. Make more than one distribution and it is considered taxable income. Tack on a 10% penalty, if you are under 59½.

Reference: The Wall Street Journal (Oct. 1, 2021) “The Biggest Mistake People Make With IRA Rollovers”

 

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Benefit Controlled Trust May Be Answer to Protecting Legacy – Annapolis and Towson Estate Planning

When beneficiaries receive their inheritance in their own names, a legacy becomes vulnerable to creditors, lawsuits, divorce and a second estate tax when they die. Complicating matters further, if the heir receives means-tested government benefits, their benefits may be lost if they receive a direct inheritance.

There is a solution, explains the article “What a Beneficiary Controlled Trust Can Do to Protect Your Legacy After You Are Gone” from Kiplinger. Having each beneficiary’s inheritance go into their own Beneficiary Controlled Trust can protect your legacy. Properly created and funded, the beneficiary may control, use and enjoy their inheritance with less risk than outright ownership. A Beneficiary Controlled Trust protects loved ones from the ups and downs of life. Divorce, lawsuits, creditor claims, bankruptcy are all unpleasant, but they do happen.

A Spendthrift Trust is used for beneficiaries who cannot be trusted to make good financial decisions, or who have people in their lives who cannot be trusted. It is like a spigot on a garden hose. The trustee decides when the beneficiary should receive access to assets, how much and when.

In a Beneficiary Controlled Trust, the beneficiary can also be the controlling trustee. The beneficiary has the same level of control as they would with outright ownership. They can make investment decisions. Assets, including real property or investment accounts, are owned by the trust.

After inheritance, the primary beneficiary has the ability to alter the level of control or protection, if they are concerned about upcoming risks. If the risk is particularly strong, for example, a contentious divorce, the primary beneficiary may resign as a trustee and appoint a trusted family member or professional to act as a trustee.

Another trust is a HEMS trust, one limited to providing distributions for the beneficiary’s Health, Education, Maintenance and Support. HEMS trusts are used to avoid estate tax. However, in some states, certain creditors, including divorcing spouses or health care providers, are permitted to pierce the trust and access assets.

If the primary beneficiary of a Beneficiary Controlled Trust wishes to enhance asset protection, they can appoint an independent trustee who serves as the distribution trustee. They may make distributions to the beneficiary at their discretion, which can provide another level of protection. The beneficiary may not wish to giver such broad discretion to an independent trustee, as in the case of Brittney Spears. This can be minimized by giving the primary beneficiary the right to remove and replace the independent trustee. The beneficiary will not have direct control over the distributions, but they decide who will manage the trust. The person may not be a related party or subordinate person.

Taxes should always be a consideration when creating trusts. Your estate planning attorney should review goals, concerns, and your unique situation to determine which type of trust works best for you and your family.

Reference: Kiplinger (Sep. 13, 2021) “What a Beneficiary Controlled Trust Can Do to Protect Your Legacy After You Are Gone”

 

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Make the Most of a Roth IRA, Even If You’re Not Ultra-Wealthy – Annapolis and Towson Estate Planning

While it may seem like only the ultra-wealthy benefit from a Roth IRA, this retirement tool is an excellent tax shelter that anyone can use, reports CNBC.com in the recent article “The ultra-wealthy have made full use of Roth individual retirement accounts. Here’s how you can do the same.” One of PayPal’s founders, Peter Thiel, had $5 billion in a Roth IRA as of 2019, according to a ProPublica report. It said that he used a self-directed Roth account, which allows the owner to hold alternative assets, like shares in a private company or real estate that generally cannot be placed in a regular Roth.

Traditional 401(k) plans and IRAs offer a tax break, when contributions are made. Taxes are paid upon withdrawal, which is supposed to happen only after a certain age when you have retired. By contrast, the Roth versions of the 401(k) and IRA do not have the tax break up front—you have to pay taxes on the money or assets when making contributions—but there are no taxes paid upon withdrawal, and there are no required withdrawals, as there are with traditional IRAs and 401(k)s.

You pay income taxes on the money placed into the account, and then it grows tax free. You can take it out anytime, as long as the account has been owned for at least five years and you are age 59½ or older. Self-directed Roth IRAs permit tax-free growth and untaxed distributions plus investments can be made that are not available in regular Roth accounts.

Theil had private company shares in his self-directed Roth IRA, before PayPal was a publicly traded company. He benefited from both timing and savvy investment skills.

Self-directed IRAs are generally available only through specialized custodians. Brand-name financial companies do not offer them. The custodians that hold self-directed IRAs do not manage the account or police what investments are placed into the accounts, so you will need the advice of a tax-savvy estate planning attorney to be sure you are following the rules. Note that there can also be valuation issues. The value of alternative assets is not as clear as publicly traded securities. You will need to get the value right, so you do not break any tax laws. Once assets are in the account, you can sell them and use the proceeds to purchase other instruments in the account, all under the same tax-free Roth protection.

Even if you do not use a self-directed Roth IRA, the standard Roth IRA yields many benefits. We do not know what the future tax environment will be, but tax-free withdrawals in the future, combined with high-growth assets, make the Roth IRA a good choice for retirement nest eggs.

Reference: CNBC.com (June 24, 2021) “The ultra-wealthy have made full use of Roth individual retirement accounts. Here’s how you can do the same”

 

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