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Sandi Hargrove, SkyHawks
Sandi Hargrove, SkyHawks, Master Tax Advisor, Enrolled Agent
Category: Tax
Satisfied Customers: 1257
Experience:  I am a Master Tax Advisor and Enrolled Agent. I have 40 years experience. Trucking specialist.
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IRA and Annuity distributions upon death

Resolved Question:

Wife died. No insurance. Huge medical bills. Received money from her IRA and an annuity as the benificiary. I want to pay all the medical bills with this money. What are the tax implications on receiving this money and can I offset the tax burden from receiving these funds with the medical deduction I can take on my (our?) 2004 tax return? I intend on using over 90% of the funds received to payoff the medical expenses. Typically I am in the 10% tax bracket although this year is a little complicated with her death. Please offer any advice you can. Thank you.
Submitted: 10 years ago.
Category: Tax
Expert:  Sandi Hargrove, SkyHawks replied 10 years ago.

 The distribution will be taxable to you as it would have been to her.  There will be no early withdrawel penalty tax assessed since the distribution was due to death. 


You may wish to rollover the remaining 10% into your own IRA to avoid tax on that portion that is not needed to pay off the medical bills.  This will reduce tax for the current year and allow you to keep the remainder as deferred income which when you tax distribution later will give you more options.  If your income is below filing requirements when you do take the distribution, it will not be taxed at all.


Many states do not tax pensions, IRAs and annuity distributions.  If this is the case, you will benefit from the subtraction on that form.

Customer: replied 10 years ago.
Response to SkyHawks's Post: You Wrote : This will reduce tax for the current year and allow you to keep the remainder as deferred income which when you tax distribution later will give you more options. If your income is below filing requirements when you do take the distribution, it will not be taxed at all.

Could you clarify : "when you tax distribution later"

Let me clarify/elaborate. I am unemployed and surviving on assets. No wage base income, approximately $20k to $25k estimated for 2004 in interest, dividends, long and short term gains. Intend on portfolio cleanup in Dec. that will offset long and short gains for almost a nil gain/loss. Interest and dividends are a third of total income. Wife died. I have already settled a $25k IRA and a $50k annuity. Will pay all medical bills for approximately $62-65k in 2004. The Annuity has a cost basis of $25k. I don't know the cost basis for the IRA.

Can I use the cost basis for these funds?

Deferred Income? I believe from what I have noted I can almost pay no taxes for 2004 if: The medical payments are deductable? Doesn't my adjusted gross income look as though it will be almost $100k or am I missing something? I need to understand the deferred income part, I'm sorry and I'll have to read up on that.

Finally, there will very little left over and I don't mind paying taxes (after all they help make America great)but wish to pay as little as possible. Due to my unemployed status some cash in my pocket would be good right now.
Expert:  Mechel118 replied 10 years ago.
 The requirements for distribution depends on whether the IRA owner died before or after the required beginning date for distributions.
Expert:  Sandi Hargrove, SkyHawks replied 10 years ago.

You are allowed to use the basis your wife had in the IRA and the Annuity to reduce your taxable portion.  Her deferred income will become taxable to you when you take the distribution even if the penalty tax will not be assessed due to her death.


You will be eligible to use MFJ filing status if your wife died in 2004 and you have not remarried by 12/31/04.  This will allow you to use her exemption amount of 3100 as well as your own to offset income.


The information listed(if I understand correctly) is aprox 8400 interest and dividends, capital gain/loss of -0-, annuity distribution 50000 reduced by basis of 25000 for 25000 taxable and IRA distribution of 25000 with no basis possibly.  This comes to aprox 58400 gross income.  With your exemption and deductions, you will have a -0- taxable income and -0- income tax due.  The return must be filed even if there will be a -0- amount.  If this is the case, you should not worry about finding the cost basis of the IRA since it will not increase your tax benefit.


I was concerned that you may feel you had to empty the IRA and Annuity funds when you did not have a need for the cash.  The larger balance in your own IRA will see you thru your own retirement.

Sandi Hargrove, SkyHawks, Master Tax Advisor, Enrolled Agent
Category: Tax
Satisfied Customers: 1257
Experience: I am a Master Tax Advisor and Enrolled Agent. I have 40 years experience. Trucking specialist.
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