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DanielleCPA
DanielleCPA, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 720
Experience:  CPA experienced in tax and financial planning
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Live in C.A. My mother passed away Oct 2012 at the age of 57.

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Live in C.A. My mother passed away Oct 2012 at the age of 57. She had the house under revocable living trust (only)t, 2 joint bank accounts(, 401k (established for awhile with 3 children as beneficiaries, a niche (sole owner), car, life policy. I had a EA prepare our mother's final income tax and estate filings. Her estate filing had 706, schedule ADEFIJ and was told a EIN # XXXXX required. Is this correct? Don't a 1041 need to be filed?
Submitted: 1 year ago.
Category: Finance
Expert:  DanielleCPA replied 1 year ago.

DanielleCPA :

Welcome and thanks for your question!

DanielleCPA :

My condolences on your mother's passing.

DanielleCPA :

Did the estate receive any income after your mother passed away or did it pay out any expenses?

Customer: There was some interest with life insurance and Roth IRA. Guess time I between notifing them and paperwork
DanielleCPA :

If the estate's income was more than $600, then it is required to file a Form 1041.

DanielleCPA :

The Roth IRA income would not be taxable, though.

DanielleCPA :

Was the interest more than $600?

Customer: Where do I find that out?
DanielleCPA :

You would need to consult with any tax forms that might have been received. Any forms probably would have been in your mother's name and social security number. If that's the case, you would need to allocate any income received after her passing to the 1041 return. For example, if she received a 1099-INT form reporting $120 in interest for all of 2012, you would report $100 on her final 1040 and $20 on the 1041.

DanielleCPA :

A 1041 may not be required if there isn't sufficient income.

Customer: My inherited Roth IRA shows change in investment value 742. And life insurance face value is 300,000 interest income of 440.53 and 28.92. So guess total of that x 3 children
Customer: 1099g- under fed tax withheld 59
DanielleCPA :

If no withdrawals were made from the Roth IRA before it was transferred to the beneficiaries' names, the estate has no income from the Roth IRA. The inherited IRA is your money, not the estate's.

DanielleCPA :

If you and not the estate received the interest income, likewise, that is not considered the estate's income. It is considered your individual income.

DanielleCPA :

Neither of these two things would create income for the estate that would necessitate filing a 1041.

Customer: her life face value is 300,000 but schedule d shows 301558 difference of 1,558 would that be considered interest?
DanielleCPA :

Schedule D on whose return?

Customer: For mom estate
DanielleCPA :

The 706?

Customer: Yes
DanielleCPA :

No, that is not considered interest.

Customer: Also her work had life proceed for 15k face value and listed 15,006 difference $6.
DanielleCPA :

Not interest.

Customer: Ok so only forms that are 1099 are considered interest?
DanielleCPA :

Generally, yes.

Customer: What about EIN#? They filed using moms ssn?
DanielleCPA :

Based on the circumstances you have described to me, it really does not sound like there is any income that would need to be reported in a separate EIN.

Customer: And I did receive checks for premium returns and her work benefit but less $600 total
DanielleCPA :

Life insurance is not taxable.

Customer: Mom did not make any withdrawals from her roth and since it was transferred into inherited Roth IRA separate acct for 3 of us we decided not to take the mrd for our lifetime distribution. We want to take it all out to fix the house how she wanted. I read behind my tax form from the Roth IRA that if the mrd box is not checked I'm liable for 50% penalty?
Customer: Can we each hold in to the inherited Roth IRA for five years til date of passing to remove and close account with interest earned and no income tax?
Customer: Why doesn't my mom estate need an ein I read so much about it
DanielleCPA :

RMDs are required for inherited Roth IRAs. You can't let the money just sit there.

DanielleCPA :

You will need to take one for 2013.

Customer: I was and still is worried but had called IRS after the filing to see update and ask about ein. They said that a ein is needed and so created one and told me to tell the EA to amend the filing. I just got a letter from IRS with ein # XXXXX also stated that a 1041 was never filed and its due next Friday!
Customer: I contacted EA they said everything is correct and they never received a letter from IRS regarding estate filing.
DanielleCPA :

Only estates that are required to file a 1041 income tax return need an EIN. Not all estates have to file a 1041. Based on what you have described to me, the estate itself did not have any income. it seems like all the income-producing assets were transferred pretty seemlessly to the owner.

DanielleCPA :

If you obtained an EIN, that's fine, but like you said, the IRS now expects you file a return for EIN.

DanielleCPA :

If there is no income to report, there is no income to report and the EA can file a zero return for you.

Customer: But I can still call to cancel since it wasn't used right?
DanielleCPA :

Yes, you can call them.

Customer: I will tomorrow. Back to mrd- we want to cash out but penalties, interest tax, and income tax should we be aware of? Say for instance interest earned, penalty, income tax?
DanielleCPA :

There is nothing preventing you from taking a larger withdrawal than the RMD. As long as you withdraw at least the RMD, there isn't going to be any sort of penalty.

Customer: What will the impact of taking everything out? I thought if we held it for 5 years and remove everything it would be tax free and would not affect our income tax... Or raise our tax bracket?
DanielleCPA :

Roth IRA distributions are not going to affect your income tax. They are not considered taxable income so are not going to affect your tax bracket.

DanielleCPA :

You have to take at least an RMD from the Roth IRA.

Customer: Even the interest it earned?
Customer: I never established a rmd with the company.
DanielleCPA :

Yes, even the interest it has earned. The only situation in which the interest earned would be taxable would be if your mom's Roth IRA account was less than 5 years old. In that case, the portion of the withdrawal attributable to the earnings of the IRA would be taxable.

DanielleCPA :

You aren't required to take an RMD in the year of death. They begin in the year following the original account owner's death.

DanielleCPA :

So, for 2012 you wouldn't have been required to take an RMD but for 2013 you will.

Customer: Ok so the 5 year period does not apply to the beneficiaries but to the original holder out mom?
DanielleCPA :

Yes.

DanielleCPA :

You don't have to hold the money for 5 years. Your mom had to have opened the account at least 5 years prior to her passing.

Customer: She made contributions every year til she passed. I thought the contributions she made each time would have to sit for five years to be taxed free
DanielleCPA :

Ok, I just realized I transposed the digits in your mom's age. I see that she was 57 instead of 75 like I thought. In that case, you do have the option of the 5 year rule, meaning no RMDs and withdrawing the assets in full before the 5 years are up.

DanielleCPA :

I apologize for any confusion caused by my misreading your question.

Customer: Five years meaning any time during 2017? Or anniversary of death?
DanielleCPA :

5 years meaning by December 31, 2017.

Customer: Ok...and I don't need to set mrd with company?
DanielleCPA :

No - I apologize for the confusion. Different rules apply based on if the deceased was under or over age 70 1/2 at the time of their death.

DanielleCPA :

Since your mom was 57, the five year rule applies and you don't have to take a RMD as long as you withdraw all the funds by December 31, 2017.

DanielleCPA :

RMDs would only be required if your mom was over age 70 1/2 or if you chose not to use the 5 year rule. I apologize that I misread her age.

Customer: Rule applies to us?
DanielleCPA :

No RMD applies.

DanielleCPA :

You can wait the 5 years.

Customer: What about taxes income tax penalties ?
DanielleCPA :

There aren't any penalties.

DanielleCPA :

The penalties only apply when RMDs were required and not taken.

DanielleCPA :

In your case, no RMD is required so there is no penalty.

Customer: No taxation on income tax or raised tax brackets?
DanielleCPA :

No.

DanielleCPA :

Roth IRA distributions are not taxed so they do not raise you tax bracket.

Customer: So if I want to take portion this year skip few years until the 5th yr and remove everything? No taxes? Even for portion taken this year?
DanielleCPA :

Yes.

DanielleCPA :

You can withdraw the money as you choose, as long as the last of it is withdrawn before December 31, 2017.

Customer: Ok. Sorry for back n forth but for my mom estate tax, how will I know if everything is ok? That is after I contact IRS to let them know to cancel ein and no 1041 is needed) IRS web site says a closing letter would be issued.
DanielleCPA :

The closing letter is related to the 706 not the 1041.

Customer: So I should receive one since a 706 was filed?
DanielleCPA :

Yes.

Customer: Why did the IRS letter say along with ein# XXXXX 1041 is needed?
DanielleCPA :

I think somewhere along the line the requirements for Form 706 and Form 1041 confused. Form 706 is attached to the decedent's social security number. Form 1041 is attached to a EIN number. If you look at 706, there isn't even a spot to fill in the EIN number.

DanielleCPA :

You may have needed a EIN for the estate for purposes other than tax filing.

DanielleCPA :

When you file an application for the EIN#, the IRS has no way of knowing whether there will be a situation that necessitates filing the return. They just assume you do unless you tell them otherwise.

DanielleCPA :

If you call them and explain the situation (that the estate had no income), they should be able to take care of getting that closed up.

Customer: And after that I would nothing further now on regarding filing anything related to my mom estate right?
DanielleCPA :

Correct.

Customer: So my EA did it correctly. And I was bugging them about it. I need to appologize to them for my persistance. i have been so troubled by all this, house and the administering of mom estate that I didn't want no impact on bro, sis and myself. You have no idea of how relieved I am now thanks to u. I can finally sleep and work at ease! Thank you so much for ur time, knowledge, and patience for all my questions.
DanielleCPA :

You're welcome. I understand dealing with estate issues can be confusing, especially at such a difficult emotional time.

DanielleCPA :

I'm glad that I could be of some help to you.

Customer: TREMENDOUSLY!
DanielleCPA :

You're welcome!

Customer: If I come across any other questions how can I access this site another time since I have paid the fee without registering?
DanielleCPA :

You can bookmark this answer so that you come back to this.

DanielleCPA :

Unfortunately, I'm not familiar with the registration in the site and what the process is when you come back to answer future questions.

Customer: Bookmark.. Meaning from my phone? Won't it erase?
DanielleCPA :

The answer won't erase.

Customer: Ok... Thank u again!!! I wish I could have came to u from the start so I wouldn't have wasted time worried. You totally explained my concerns.
DanielleCPA :

You're welcome.

Customer: Goodnight.
DanielleCPA :

Same to you.

Customer: Sorry! One more thing do I save and exit or rate and exit?
DanielleCPA :

Rate and exit, please.

Customer: Ok thank u!
DanielleCPA :

You're welcome

DanielleCPA, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 720
Experience: CPA experienced in tax and financial planning
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