Could you elaborate on point 3? I'm not familiar with how a family foundation would work as the charitable beneficiary. Would you still effectively "lose" the money, or can family members somehow benefit from the foundation?

Happy to elaborate. A family foundation is still a legitimate charity - the assets irrevocably leave your personal control and must be used for charitable purposes. However, family members can serve as board members/trustees and direct the foundation's charitable activities. For example, if you care about education, your foundation could fund scholarships or educational programs. You can't use it to directly benefit family members (like paying for your kids' college), but you can focus on causes you care about, potentially hire family members to run it (with reasonable compensation), and create a family legacy through the charitable work. The assets are still permanently devoted to charity, but you have influence over how they're used for charitable purposes.

CLATs are an interesting alternative worth exploring. With a CLAT, charity gets payments for a specified term, and whatever's left goes to your non-charitable beneficiaries. If investments outperform the IRS assumed rate, you can potentially transfer significant assets to heirs with reduced gift/estate taxes. It doesn't provide the income stream a CRUT does though, so depends on whether OP needs ongoing income or is more focused on eventual wealth transfer.

No, her filing taxes doesn't automatically disqualify her as your dependent. As long as she meets all the tests (income under the limit, you providing more than half support, etc.), she can still be your dependent even while filing her own return. In fact, she SHOULD file for her 1099 work even if you claim her as a dependent - she's required to if her self-employment income is over $400 because of Social Security/Medicare taxes. She just needs to check the box that says "Someone can claim you as a dependent" on her return.

Did your tax preparer need to see the 5498 form, or were they able to process everything with just the 1099-R and the documentation showing the transfer/merger?

My tax preparer didn't need the 5498 form at all. She was able to process everything correctly with just the 1099-R and my documentation showing the transfer happened because of the merger. She told me that tax preparers are very familiar with this situation and know exactly how to code it properly in the tax software. The 5498 forms are more for record-keeping and verification if the IRS has questions later, but they aren't necessary for preparing and filing an accurate return.

I used TurboTax last year for this exact scenario. It definitely handles it, but you need to make sure you answer the questions correctly. When it asks about your 1099-R, there's a specific question about whether you rolled over the distribution into another qualified retirement account. Make sure you say YES to that question, and it'll treat it as non-taxable. It'll also ask you to enter the amount rolled over, which should be the full amount from the 1099-R in your case.

Thanks for this suggestion. I actually looked into the loan option with my plan administrator yesterday. They do offer loans but only up to $50k as you mentioned, and I need about $95k for my situation. I also have concerns about the repayment terms since my job situation isn't 100% stable right now. Do you know if it's possible to do a combination approach - maybe take the maximum loan of $50k and then do a withdrawal for the remaining amount I need? Would that at least minimize the tax hit compared to withdrawing the full amount?

Yes, you can absolutely use a combination approach. Taking the maximum loan of $50k and then withdrawing the additional $45k you need would definitely minimize your overall tax hit and penalties. With this approach, the $50k loan would have no immediate tax consequences as long as you make the required payments. Then only the $45k withdrawal would be subject to the pro-rata rule for determining how much is considered contributions versus earnings (and thus how much would be subject to taxes and the 10% early withdrawal penalty).

Adding to this - if your need is COVID-related, check if your plan still offers any CARES Act withdrawal provisions. Some plans extended these options. These special withdrawals allow for spreading the income taxes over three years and waive the 10% early withdrawal penalty.

How much did that third-party compensation study cost? And did you have a tax attorney help set all this up or did you DIY it? Seems like a lot of complexity just to avoid some taxes.

The compensation study cost about $3,500, but was worth every penny when the IRS came calling. I did have a tax attorney help set everything up initially - cost around $8,000 for all the documentation, agreements, and structure. Yes, it's not cheap upfront, but I've saved well into six figures in taxes over three years. It's not just about tax savings though. The structure actually makes business sense for us - the C-Corp focuses on production and operations while the S-Corp handles strategy and growth initiatives. Having the separation has helped us clarify roles and responsibilities within the company.

I'm in NY and ran into similar issues. The state was much more aggressive in challenging our management fee structure than the feds were. Ended up having to restructure everything after a state audit that disallowed most of our inter-company transactions.