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a benificiary on a mutual fund and some stock. If I cash them out do I need to pay taxes?
Optional Information: Forest Hills, New York
Were you beneficiary on the account (such as a Transfer on Death Account or IRA)? When did you receive the assets?
Yes I am a beneficiary on the accounts and I am about to do the transer on death account. I have not received anything as yet....I am just about to submit the paperwork to transer the assets to my name.
If they are TOD accounts then there are no Income Tax implications if the assets are distributed to you in-kind. When you sell the funds or stocks then you will calculate gain or loss based on the difference between the sales proceeds and the values on the decedent's date of death. Any gain or loss would be considered long term. If there are any IRA accounts involved, then you will pay income tax when you take distributions from the account. If the decedent's gross estate was less than $2,000,000 there will be no federal estate taxes. Depending on the decedent's state of residence, there could be state estate or inheritance taxes.
Reply to Bill's Post: I have a few questions regarding your answer. What is TOD? You are talking to a novice. What do you mean by distributed to you in kind? You talk about selling funds or stocks...are you saying that if the stock is more at the time that i sell then i would pay taxes on the gain? Also what are distributions on account. Also I live in Queens NY do you know what the state taxes (what percentage they would be)? You can either answer these directly or you can rewrite for a novice. Once you do I will submit payment. Thanks!
A TOD (Transfer on Death) is an account that will pay out the assets in the account to the beneficiary who the decedent designated on the account. If it was not established under this arrangement and was an account owned in the decedent's name only, then the executor of the will would provide instructions to have the assets paid to the estate. If it was joint account with rights of survivorship, then there would be 2 names on the account and the assets would be transferred to the surviving tenant. Distributed in-kind means that the assets are put in your name (not sold) and either transferred to a new account in your name or sent to you via stock certificates or mutual fund confirmation statements. If the account is an IRA, any time you withdraw from the account it is referred to as a distribution. Assuming the account was not an IRA, if you sell the stock for more than it was valued at on the decendent's date of death, then you will have to pay income taxes on the gain. For federal income taxes the gain would be taxed at 0 or 15% rates depending on your overall income. In NY the state income taxes are 4 - 6.85% depending on your total income. For example, if your taxable income is in excess of $20,000 then the rate is 6.85% on the amount of income in excess of this.
Experience: EA, CEBS - 32 years experience providing financial advice