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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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my sister n i r doing estate of my dad. im trying to get the

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my sister n i r doing estate of my dad. im trying to get the house. the probleum im having is . in my dads will he states every thing in his esetate is to be seprated equil . migorty of estate is iras . with some liquid assets . my sister told me i have to cash out my half of ira to buy out ira. that means i gets heavy taxes on money 4 house .   sence this is part of estate do i get stuck paying all taxes ? or do we share half n half on taxes
Submitted: 6 years ago.
Category: Tax
Expert:  Lev replied 6 years ago.

All property owned by the deceased at the time of death should be generally included into the estate. It is possible that only part of estate goes through probation - not the total estate.

 

Actually for inherited IRA you have two options:

  • transfer the inherited IRA to an Inherited IRA Beneficiary Distribution Account and then plan distribution, or
  • disclaim all or part of your portion of the inherited IRA.

You can begin making the minimum required distributions (MRD) by Dec 31 of the year following the IRA owner's death. Your MRD are based on your life expectancy or the 5-year rule depending on whether or not you are a designated beneficiary.

If an IRA owner dies before age 70 ½ or has not started withdrawing the minimum distributions, beneficiaries of the IRA must follow either rule:

  • One-year-rule: If the beneficiary is the designated beneficiary, distributions must begin by December 31 of the year following the owner's death. Distribution withdrawals are based on the beneficiary's life expectancy.
  • Five-year-rule: The beneficiary must receive the full interest in the inherited IRA by the end of the fifth year following the owner's death. There are no minimum annual distributions required with the five year rule.
  •  

    As you can see, these rules are not simple and you should plan the distribution carefully to minimize tax impact. From tax purposes it might be better to spread distribution over several years - otherwise you will be pushed into higher tax bracket and your tax liability might be huge.

     

    If you are looking to compare the value of the inherited funds in IRAs with other tax-free inherited property - you need to consider potential tax liability.

    Thus, assuming 25% federal and 5% state income tax rates on IRA distribution - $1000 in IRA account - if distributed - will be equal to $700 after-tax money.

     

    Customer: replied 6 years ago.
    i was all ready told that she wants cash i talked to cpa the taxes r high i wanted to know if im to pay taxes alone or does my sister have to pay half do to estate
    Expert:  Lev replied 6 years ago.

    That depends how do you structure the distribution:

    • if you transfer the inherited IRA to your's Inherited IRA Beneficiary Distribution Account and then take a distribution - you are responsible for taxes in connection with that distribution.
    • If the money are transferred to your sister's Inherited IRA Beneficiary Distribution Account and then she would take a distribution - she is responsible for taxes.
    • If the money are distributed from the decease's account directly to the estate - the estate is responsible for taxes or if the estate distribute the money to beneficiaries - and report on the form K-1 each beneficiary's taxable portion - each beneficiary will report that part on his/her individual tax return.

     

    Lev, Tax Advisor
    Category: Tax
    Satisfied Customers: 23198
    Experience: Taxes, Immigration, Labor Relations
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