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CGCPA
CGCPA, CPA
Category: Tax
Satisfied Customers: 3738
Experience:  over 40 years experience in tax matters
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I have a client that received an inheritance in 2010 from her

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I have a client that received an inheritance in 2010 from her Uncle. The inheritance consisted of the following:

Cash $100K
Stock $45K Fair market value on date of Uncle's death
Cash proceeds of $34K from her Uncle's 401K plan and 453 plan
A house $275K Fair market value on date of Uncle's death


I am in the process of preparing my client's 2010 federal Income tax return.
Do I need to report any of the above on her tax return? If so, on what line of federal form 1040? Can she roll-over the cash proceeds from her Uncle's 401K plan to her own IRA and thereby defer income tax?

Michael
Submitted: 2 years ago.
Category: Tax
Expert:  CGCPA replied 2 years ago.

Welcome to Just Answer. I am here to help you resolve your tax and finance concerns. Please feel free to ask anytime you need extra help.

She need not report the cash, stock, or house on her tax return. However, please remember that the FMV of the house and stock at the date of her Uncle's death is to serve as her basis should she ever decide to sell these.

The money from the retirement plans cannot be rolled over. Here is a piece from the IRS Publication 590. You can read more about this at www.irs.gov

Inherited from someone
other than spouse.
If you inherit a traditional IRA from anyone other than
your deceased spouse, you cannot treat the inherited IRA as your own. This means
that you cannot make any contributions to the IRA. It also means you cannot roll
over any amounts into or out of the inherited IRA. However, you can make a
trustee-to-trustee transfer as long as the IRA into which amounts are being
moved is set up and maintained in the name of the deceased IRA owner for the
benefit of you as beneficiary.



Like the original owner, you generally will not owe tax on the assets
in the IRA until you receive distributions from it. You must begin receiving
distributions from the IRA under the rules for distributions that apply to
beneficiaries.

Here is a link to Publication 590

http://www.irs.gov/publications/p590/ch01.html#en_US_2010_publink1000230538

As to the reporting on a tax return, lines 15(a) is used to report the gross amount distributed and line 15(b) is used to report the taxable portion of that distribution. As a death benefit there will be no early distribution penalty.The gross distribution and taxable portion may differ due to a number of circumstances and you will need to wait to see the 1099-R at year end. For practical planning purposes you should consider it as all taxable for now. Then you will be taking a safe path.

CGCPA, CPA
Category: Tax
Satisfied Customers: 3738
Experience: over 40 years experience in tax matters
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