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Tax saving strategies and inherited IRAs

1. Allan and Sarah are not married. Sarah has a low income but Allan has a high income.

a. How might a loan from Sarah to Allan be advantageous to them?

b. How might it be advantageous for Allan to rent something from Sarah?

2. Allan and Sarah are married. Allan passes away and Sarah is the sole beneficiary of Allan's IRA. Marge has the option of rolling over Allan's IRA into her own IRA. Why might Sarah prefer not to roll over Allan's IRA as her own?

Solution Preview

If I understand the intended result of your questions, you are looking for strategies to minimize the income tax in total between the two individuals. "Income shifting' is a common term for this type of strategy, but it is not as easy to accomplish as one might think.

The first problem is that to shift either income or deductions from one to another requires a valid business purpose. Interest paid on personal loans, for example, is not deductible by Allan. Business interest would be, as well as mortgage interest or rental interest. Allan would need a valid business making a profit, or a real mortgage on a property (subject to ...

Solution Summary

In a 445 word solution, the problem of income or deduction shifting between non-married individuals is discussed including examples and restrictions. It is not as easy to accomplish as it would seem. There are two paragraphs about inherited IRAs which explain the tax position for the person who inherits.

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