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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 10123
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I inherited $100k in pretax contributions to a 457b plan. I

Customer Question

I inherited $100k in pretax contributions to a 457b plan. I also made about $200k through my s-corp. I'm looking to minimize taxes. I was hoping to donate the $100k to a 501c3, take $80k salary and the rest as a distribution? I need to preserve some income as I'm planning on buying a couple of houses next year.
Submitted: 1 month ago.
Category: Finance
Expert:  Lane replied 1 month ago.

Good morning!

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What comes to my mind first, as it relates to an inherited 457b is preserving options by rolling to an inherited IRA (sometimes called a beneficial IRA)

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To defer taxes on an inherited 457, you must open an “inherited IRA.” This type of account has special rules.

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First. you must register an inherited IRA in the name of the deceased for your benefit as a nonspousal beneficiary.

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Next, do a trustee-to-trustee transfer (what IRS calls a DIRECT transfer) from the deceased’s 457 plan to the inherited IRA.

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The code doesn't allow you to contribute or roll over any more money into this IRA, and you can’t roll any money out.... But the tax is deferred, you can either take out over a five year period OR over your own life exectancy, to minimized the bracket creep.

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YOu can also roll to a roth and pay the tax, but have the growth going FORWARD be tax free, none of the dollars you withdraw will ever be taxable, regardless of the growth.

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Coincidentally, the tax effect of of doing a Qualified Charitable Distribution (QCD), from the rolled IRA, and simply giving ro charity from other funds is about the same here:

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Under IRS Notice 2007-7, Q&A-36, a beneficiary of an inherited IRA can be eligible for a QCD, as long as the you are at least age 70 ½ on the date of the distribution, (in the event, THATs the issue ere) and the maximum dollar amount of a QCD for any individual from an IRAs is limited to $100,000 per year.

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So compared to taking the distribution (and taxing 100,000), not rolling, and then using other funds to contribute to charity would work about the same (at least in them of the tax effect, for the year). The 100,000 distribution would be taxed, but in any given tax year, you are allowed to deduct charitable contributions worth up to 50% of your adjusted gross income. (I50% of oyur 200,000 = 100,000).

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You can also look to buy the houses INSIDE the IRA OR if not having RMD's is the issue roll to the roth, pay the tax, do the charitable contribution from other funds, and get tax deferred growth on the Roth (with houses in it) going forward.

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Hope this has helped you think through the options.

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If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the stars or faces on your screen, and then clicking “submit")

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But, let me know if you need more on this.

Lane

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I hold a law degree, with concentration in Tax Law, Estate law & Corporate law, a Master’s Degree, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986

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