Assuming an estate with a value much greater than the estate tax exemption limit, is Roth more efficient than pre-tax?
My understanding is that the tax is calculated on the total estate value minus the exemption, then a 40% tax is assessed (ignoring the graduated tax on the 1st $1MM) on this vlaue.
But assuming a high tax bracket, a Roth dollar is worth more than a pre-tax dollar, so the owed estate tax on a pre-tax IRA worth $38MM would be substantially higher than on a $25MM Roth IRA (both accounts have the same post-tax value of ~$25MM at 35% tax bracket)?
Additionally, when paying the estate tax from the pre-tax IRA, does the income tax need to be paid as well? i.e assuming the estate tax bill was $5MM and it was paid entirely from a pre-tax account, do we need to withdraw $7.7MM to pay the income tax and the estate tax? If so it seems like a double whammy of being charged more tax due to the higher relative balance in the pre-tax account.
This all seems to imply that a Roth balance may be significantly more valuable to heirs than a traditional balance even if there was no impact to the deceased's net worth between the two (assuming an estate worth much more than the estate exemption)
My understanding is that the tax is calculated on the total estate value minus the exemption, then a 40% tax is assessed (ignoring the graduated tax on the 1st $1MM) on this vlaue.
But assuming a high tax bracket, a Roth dollar is worth more than a pre-tax dollar, so the owed estate tax on a pre-tax IRA worth $38MM would be substantially higher than on a $25MM Roth IRA (both accounts have the same post-tax value of ~$25MM at 35% tax bracket)?
Additionally, when paying the estate tax from the pre-tax IRA, does the income tax need to be paid as well? i.e assuming the estate tax bill was $5MM and it was paid entirely from a pre-tax account, do we need to withdraw $7.7MM to pay the income tax and the estate tax? If so it seems like a double whammy of being charged more tax due to the higher relative balance in the pre-tax account.
This all seems to imply that a Roth balance may be significantly more valuable to heirs than a traditional balance even if there was no impact to the deceased's net worth between the two (assuming an estate worth much more than the estate exemption)
Statistics: Posted by axesofevil — Tue Dec 24, 2024 11:27 am — Replies 6 — Views 138