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How do wealthy individuals transfer property & assets to children using trusts to avoid taxes?
So I've been helping my aging parents organize their finances (they're not super rich but have a decent home and some investments) and I'm curious how the really wealthy manage to pass down their stuff without getting destroyed by taxes. I've heard trusts mentioned but don't really understand how they work. Like if someone owns property worth millions or has a lot of investments, how do they use trusts to get those to their kids without the government taking a huge chunk? Are there different types of trusts? And what makes them better than just leaving everything in a will? I'm trying to understand the basics here so I can have an informed conversation with my parents about their options.
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What percentage should I withhold for taxes when taking money from my IRA?
Hey everyone, I just hit retirement age last month and I'm planning to set up regular withdrawals from my IRA at Fidelity. I'm trying to figure out the right amount to withhold for taxes. Right now, Fidelity has the default set at 10% for federal tax withholding, but I'm not sure if that's enough (or maybe too much?). I don't want to end up owing a bunch at tax time, but also don't want to have too much tied up if I don't need to. Has anyone dealt with this before? Is 10% typically enough or should I adjust it? I've never had to manage withdrawals before so this is all new territory for me. Thanks!
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Has anyone used the IRS withholding calculator for this? I tried but it seems more designed for W-2 income than retirement accounts. Is there a better calculator specifically for retirees with IRA distributions?
The IRS Withholding Estimator isn't great for retirees. I've had better luck with some of the retirement-specific calculators from Schwab or Fidelity. They have options specifically for pension and IRA income that the IRS calculator doesn't handle well.
Brady, congratulations on reaching retirement! This is such an important question and you're smart to think about it upfront. I went through this exact same situation about 2 years ago when I started my IRA withdrawals. The 10% default is rarely the right amount for most people. What really matters is your total tax picture - not just the IRA withdrawal itself. You'll want to consider: 1. Your other retirement income (Social Security, pensions, part-time work) 2. Your filing status and standard deduction 3. Any other taxable income or capital gains 4. Your state's tax treatment of retirement income I ended up needing to withhold 20% because I had Social Security and some rental income that pushed me into a higher bracket than I expected. The key is to think about your total annual income, not just the IRA portion. One practical tip: Start conservative your first year. You can always adjust the withholding percentage for future distributions based on how your first tax season goes. It's better to get a refund than owe penalties for underpayment. Have you calculated what your total retirement income will be for the year? That's really the starting point for figuring out the right withholding rate.
Great questions, Zoe! You can actually change your withholding percentage as often as you want - there's no IRS limit on frequency. Most brokerages like Fidelity, Vanguard, etc. let you update it online anytime, and it typically takes effect with your next distribution. I've changed mine 3-4 times in a year when my income situation shifted. For Social Security projections, definitely create an account at ssa.gov if you haven't already. Their benefit estimator gives you pretty accurate projections based on your actual earnings history. It shows estimates for different retirement ages too, which is helpful for planning. For other income sources, I found it helpful to make a simple spreadsheet listing all potential income sources month by month. Include things like: - Social Security (varies by when you start) - Any pension payments - Part-time work income - Required minimum distributions when you hit 73 - Interest/dividend income - Rental income if applicable Once you have that annual total, you can use the tax brackets to estimate what percentage to withhold. I started at 22% my first year, dropped to 18% after seeing how things played out, then bumped back up to 20% when I started Social Security. The flexibility to adjust is really valuable!
@Zoe Alexopoulos Great questions! You can actually change your withholding percentage as often as you want - there s'no IRS limit on frequency. Most brokerages like Fidelity let you update it online and it takes effect on your next distribution. I ve'adjusted mine 3-4 times in a year when my income situation changed. For Social Security projections, definitely create an account at ssa.gov and look at your Social Security Statement. It shows estimated benefits based on different retirement ages. For other income sources, I found it helpful to track everything in a simple spreadsheet - pension statements usually show monthly amounts, and you can estimate part-time work or rental income. One thing that caught me off guard was how Social Security can be partially taxable depending on your total income. Up to 85% of your Social Security benefits can be taxed if your combined income exceeds certain thresholds. This is something to factor into your withholding calculations that many people don t'realize. @Ryan Young s advice'about starting conservative is spot on. I started with 22% withholding my first year and ended up with a small refund, then adjusted down to 18% the following year based on my actual tax situation.
Can I still qualify for head of household if my son is 1 college credit short of full-time status?
I've got a bit of a tax situation with my kids who live with me. My son (22) and daughter (20) both have birthdays late in the year, so they were 21 and 19 for most of 2023. They both work and earn more than the $5,900 gross income limit for qualifying dependents. My son attended the local community college throughout 2023 but only took 10 credits one semester and 11 the next. The college considers 12 credits as full-time student status. My daughter took 6 credits for the first semester while she was 19, then dropped out to work full-time for the rest of the year. I've been claiming head of household status on my W-4 all year, and now I'm worried I've made a huge mistake. When I plugged my numbers into TaxAct, filing as single shows I owe about $3,800. But if I could claim a dependent and keep head of household status, I'd get a refund of around $1,200 instead. It just doesn't seem fair that there's a $5,000 difference in my tax situation when I'm still providing more than half of their support! That one credit my son is short could cost me thousands. I'm planning to see a tax professional this year, but wondering if anyone here has dealt with something similar? I know "rules are rules" but man, this is hard to accept if there's no flexibility at all.
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This whole thread has been incredibly eye-opening! I'm in a very similar situation - my 22-year-old son took 11 credits each semester at community college and earned about $12,000 working part-time. I've been stressing about this for weeks thinking I'd have to file single and owe a bunch of money. After reading everyone's experiences, I'm realizing I need to do a proper support calculation like Charity and others described. I pay for his housing, food, car insurance, health insurance, phone, and gave him money for textbooks and gas. When I rough-calculate it, I'm probably providing close to $20,000 in support while he maybe spent $3,000-4,000 of his earnings on personal expenses (the rest went into savings for a car). The disability accommodation angle is particularly interesting since my son has documented anxiety and receives testing accommodations. I never thought that could impact the full-time student requirement for tax purposes. I'm also impressed by how many people found success with both the AI tax analysis tool and the IRS callback service that were mentioned. It sounds like there are definitely more resources available than I realized for these edge cases. Has anyone dealt with a situation where the community college initially said 11 credits wasn't full-time, but then provided documentation showing it was appropriate for a student with accommodations? I'm wondering if it's worth reaching out to my son's disability services office before I file.
Yuki, your situation sounds almost identical to what I went through! Definitely reach out to your son's disability services office - I was surprised by how helpful they were when I explained what documentation I needed for tax purposes. When I contacted them about my daughter's ADHD accommodations, they were able to provide a letter stating that her reduced course load was considered appropriate and equivalent to full-time status given her documented condition. They even referenced the specific accommodations in her file that supported this determination. The key is explaining that you need documentation showing the 11-credit load was considered full-time equivalent due to his anxiety accommodations. Most disability services offices are familiar with these requests since students sometimes need this for financial aid or other purposes too. Your support calculation definitely sounds like you're providing well over 50% - $20,000 from you versus $3,000-4,000 he actually spent on living expenses is a pretty clear case. Just make sure to document everything carefully in case you ever need to provide backup to the IRS. I ended up using that taxr.ai tool someone mentioned earlier to double-check my analysis, and it was helpful in identifying some IRS publication references I could point to if needed. Good luck!
I'm new to this community but wanted to share what I learned after going through a nearly identical situation last year. My 21-year-old was taking 11 credits per semester (one short of full-time) and earning about $9,500 from a part-time job. The game-changer for me was understanding that the support test is about what they actually spend on living expenses, not their total income. I tracked every dollar - housing, utilities, food, insurance, phone, etc. Even though my son earned decent money, he was only spending about $2,800 of it on actual support (mostly gas and occasional meals out). The rest went to savings. Meanwhile, I was providing over $19,000 in support. What really surprised me was learning about the disability accommodation exception that Justin mentioned earlier. My son has documented ADHD, and when I contacted his college's disability office, they provided a letter stating that his 11-credit course load was considered full-time equivalent given his accommodations. This was crucial for the student status requirement. I also used both tools mentioned in this thread - taxr.ai helped me understand the specific IRS rules that applied to my situation, and Claimyr got me through to an IRS agent who confirmed my interpretation. Between the proper support calculation and the disability documentation, I was able to file head of household and save over $4,000. Jackie, definitely explore the disability accommodation angle if your son has any documented conditions requiring accommodations. And don't forget to calculate actual support provided vs. what your kids spend on their own living expenses - the numbers might surprise you!
Lucas, thank you so much for sharing your experience - this gives me a lot of hope! Your situation sounds almost exactly like mine with the 11 credits and similar income levels. I'm definitely going to contact my son's disability services office about his anxiety accommodations. I had no idea this could impact the full-time student requirement for tax purposes. Did you need any specific language in the letter from the disability office, or did they know what to include when you explained it was for tax documentation? The support calculation breakdown you described is really helpful too. I've been so focused on the income numbers that I wasn't thinking about what they're actually spending versus saving. When I think about it, my son saves most of his paycheck and I'm covering all his major expenses. I'm curious about your experience with both taxr.ai and Claimyr - did you use them in a specific order, or would you recommend one over the other for someone just starting to figure this out? With potentially $4,000+ at stake like in your case, it seems worth investing in getting the right guidance. Thanks again for the detailed breakdown - it's exactly what I needed to hear to feel confident about exploring these options!
Does TaxSlayer offer Refund Advance loans like TurboTax and H&R Block?
I'm thinking about using TaxSlayer this year to file my taxes but I really need my refund asap. Do they offer refund advances like some of the other tax companies? If not, which companies are offering the best advance amounts for 2025?
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ur better off waiting for ur actual refund tbh. these advance loans are just another way for these companies to make $$ off poor people 💅
@Vanessa Chang I totally get that. If you do need an advance, maybe try H&R Block first since they have better terms than some others. But definitely check out that taxr.ai tool @Ella Knight mentioned - might help you see if you can hold out just a bit longer!
I totally get needing your refund fast! If you're set on an advance, I'd definitely go with H&R Block or TurboTax like Madison mentioned. But honestly, if you can swing the $5 for that taxr.ai tool Ella recommended, it might save you from needing an advance at all. Sometimes refunds come way faster than we think, especially if you file early and have direct deposit set up. The IRS has been pretty good about getting refunds out within 21 days if there are no issues with your return.
This is such good advice! @Zara Ahmed is right about filing early - I filed on Jan 20th last year and got my refund in 16 days with direct deposit. The IRS opens up for e-filing on Jan 27th this year, so if you can wait just a week or two more instead of paying advance fees, you might save yourself some money!
How to File Form 1098 with $0 Outstanding Principal Balance After Lender Sold Mortgage
Just purchased my first home in March and I'm now trying to do my taxes. I've run into a weird situation with my Form 1098. The original mortgage company that I closed with ended up selling my loan to another servicer only about a month after we closed. Now I have a 1098 from the first lender showing mortgage interest I paid (about $2,400), but it shows $0 in the outstanding principal balance box. I'm using H&R Block's software to file and it's giving me an error when I try to enter this information. The software won't let me proceed with $0 in the principal balance field and keeps showing an error message. Has anyone dealt with this before? I'm not sure if I'm entering something wrong or if there's a workaround for this situation. I definitely paid the interest and want to claim the deduction.
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Has anyone run into this issue with TurboTax? I'm experiencing the same thing with my mortgage that was sold twice last year, but using TurboTax instead of H&R Block.
I had this issue with TurboTax last year. What worked for me was entering the forms separately and when it wouldn't accept the $0 principal, I just put $1 instead. Then for the form from my new lender, I entered the correct principal balance as of year-end. TurboTax combined the interest amounts correctly for my deduction.
I went through this exact same situation when I bought my house two years ago! The mortgage sale happened so quickly that I ended up with three different 1098 forms from three different servicers. What a nightmare. Here's what I learned after dealing with multiple tax software programs: the key is understanding that each 1098 reflects only the period that lender serviced your loan. So your original lender is correctly showing $0 principal balance because they didn't hold your loan at year-end. If you're still having trouble with H&R Block's error messages, try this workaround: enter a minimal amount like $1 for the principal balance on the first 1098, then make sure you have the correct year-end balance on your second 1098 from the new servicer. The software cares more about having *something* in that field than the actual accuracy for the sold loan. Also, double-check that you received all the 1098s you should have. If you made payments to multiple servicers during the year, you should get a form from each one. Don't forget to look for any escrow interest as well if that applies to your situation.
Zoe Dimitriou
I work as a financial advisor and wanted to add that life insurance trusts (ILITs) are another powerful tool wealthy families use. Life insurance proceeds are generally income-tax free, but still count toward your taxable estate. By creating an irrevocable life insurance trust that owns the policy, the death benefit stays outside your estate. This can provide liquidity for heirs to pay estate taxes on illiquid assets (like businesses or real estate) without having to sell them quickly at potentially reduced values.
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Aisha Hussain
That's fascinating. So the trust owns the policy, not the person? How do premiums get paid? Wouldn't that be considered a gift to the trust?
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Zoe Dimitriou
Exactly - the trust owns the policy, not the individual. For premium payments, the grantor makes cash gifts to the trust, and then the trustee uses those funds to pay the premiums. Yes, these premium payments are considered gifts to the trust beneficiaries, but that's where the annual gift tax exclusion comes in ($17,000 per beneficiary in 2023). To qualify for this exclusion, beneficiaries need "present interest" in the gifts, so trusts typically include "Crummey powers" - named after the court case that established them - giving beneficiaries temporary withdrawal rights over contributions. Most never exercise these rights, allowing the trustee to use the funds for premium payments instead.
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Debra Bai
This is such a helpful thread! I'm dealing with a similar situation with my parents. One thing I'm curious about - what's the typical timeline for setting up these trusts? My dad is 78 and in good health, but I'm wondering if there are any age-related considerations or if it's "too late" to start this process. Also, are there minimum asset thresholds where trusts actually make financial sense after accounting for setup and ongoing administration costs?
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