What do you plan on leaving for your heirs?
Successful people have long set aside gifts for their heirs. IRC § 1014(a) provides what is commonly called Stepped Up Basis. Simply put it works this way:
Mom bought an investment some years ago for $950,000. She held the asset as it appreciated in value. At the time of Mom’s passing, the investment had a market value of $2.5 million. Her son Bobby was Mom’s beneficiary and rightfully inherits the asset. A short while later, Bobby decided to sell the investment and do something else with the money. He sells for its current market value of $2.75 million.
When he sells the investment, what basis will Bobby have to use to determine profits and hence the income tax due?
Current Method
At the time of Mom’s passing IRC §1014(a) gave the asset a Stepped Up Basis value of the market value at the time. $2.5 million, hence, the profit on the sale of the asset is:
$2,750,000 (Sale Price)
_ – $2,500,000 (Stepped Up Basis)
=$250,000 profit which becomes the taxable amount
Biden Prosed Method
Repeal most of IRC §1041(a) thus eliminating Stepped Up Basis. The new result, the profit on the sale will be $2.75 million – the original cost $950K will be much higher.
$2,750,000 (Sale Price)
-$950,000 (No Stepped Up Basis
= $1,800,000 profit which becomes the taxable amount
Suggested IRA Club Alternative
If you are now, or are considering making an investment you believe could appreciate in value, make the investment inside a Roth IRA. When your beneficiary inherits a Roth IRA they inherit not just the assets inside the Roth IRA, but also the tax treatment of the Roth IRA.
$2,750,000 (Sale Price)
Roth IRA Income Tax Treatment
$0 of taxable profits
Roth IRAs have never been more important than they are today. At IRA Club, you can set up a Roth IRA for you for under $200.
You may:
- Contribute to a Roth IRA
- Convert your Traditional IRA to Roth
- Transfer to a Roth IRA from a 401(k) or QRP
There is no need to pay income taxes on your gains ever again. You can legally avoid unnecessary taxes for less than a $200 start-up cost.
To Conclude
This is just one way among many that the tax code is changing to benefit people that put their funds in tax-sheltered accounts. With each passing year, it is becoming increasingly likely that the government will have to find ways to raise additional funds to make up budget shortfalls. The higher taxes go, the more benefits exist for people that put money into these tax-shelters. If you’re a forward-thinking person, it makes sense to act now in order to make the most of your investments. The IRA Club has a dedicated team of experts on these accounts that are happy to answer any of your questions and assist you every step of the way.
For information about the Self Directed IRA or Solo 401k, call IRA Club at 312-795-0988
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