A friend is 98 years old and has 700K in a mutual growth fund (that is his entire savings). Cost basis was only 10K. He wants to withdraw it and put it in cd's. He does not touch the money (ever) but wants to leave it to heirs.
The cd thing is because he will have peace of mind as he can visit the bank etc. My take is that he can avoid a big tax hit by leaving it as and giving the untouched fund to the heirs.
What do you think?
My take is that he can avoid a big tax hit by leaving it as and giving the untouched fund to the heirs.
100% correct. By withdrawing now he'll be subjected to the income tax on the gains. Since his gains are almost the whole value of the account, he'll actually find himself in the highest bracket, not the lowest as Joe suggests.
Not only that, but his SS income will become taxable as well. Capital gains are included in the AGI.
By leaving as is, the heirs will get stepped up basis, and the whole 700K will not be taxed (its below the estate tax threshold, and the basis for the heirs will be the value at death).
