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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2882
Experience:  Over 20 Years experience
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My mother in law is very ill and asked my wife and I to distribute

Resolved Question:

My mother in law is very ill and asked my wife and I to distribute her estate. Most of hr money is in an IRA, about 70,000. She wants to split the money between her grand children. I am worried about inheriting it and withdrawing the money to distribute. I will be paying way to much in taxes. She is 73, should she withdraw it and pay the 10%. Can the money then be distributed from her checking account?
Submitted: 2 years ago.
Category: Tax
Expert:  R. Klein, EA replied 2 years ago.

Randalltax :

As long as she is alive, she is required to take at least a minimum distribution (RMD) each year.

Randalltax :

There are no penalties for early withdrawal since she is old enough, but there are penalties of 50% of the RMD amount if she does not take money out

Randalltax :

Of course, at any time, she can take the whole amount out without any penalty, but ordinary tax is due

Randalltax :

If she took a lump sum out, she could gift each person in the family up to 13K without filing a gift tax return.

Customer:

She is very ill

Randalltax :

That means you and your wife could get $26K in one year without gift tax return

Randalltax :

Of course, if her estate is less than $5MM, she could just use her exemption and gift any amount

Customer:

OK

Customer:

so she is going to withdraw the full 71,000

Randalltax :

If she empties her retirement account before she passes away, then you need not worry about sipping money with requried distributions after she passes. You get tax free cash

Randalltax :

But she needs to save a bit of that $71K to pay the tax bill

Customer:

we are paying her bill

Randalltax :

Is she getting Social Security too?

Customer:

bills

Customer:

yes

Randalltax :

remember that 85% of the SS benefit is taxable too

Customer:

she is under hospice care with us

Randalltax :

OK sorry to hear

Customer:

Thank You

Randalltax :

Does she have any other assets like a house?

Customer:

so if we have Mirrell Lynch withhold 10%

Customer:

or 7100

Randalltax :

10% will be light.

Customer:

will she owe additional tax?

Randalltax :

How much is her SS benefit?

Customer:

so far this year?

Randalltax :

Of course, the longer she hangs on, the more checks she gets

Randalltax :

monthly benefit?

Customer:

300

Customer:

so I guess for this year her income will be in the 75,000 range

Randalltax :

OK not much

Randalltax :

I would think around 15% would cover the tax then

Customer:

so she will owe tax on that if she withdraws

Customer:

OK

Randalltax :

Add a few more percent for Mr. Christie's share

Customer:

and will my wife be responsible for that after she is gone?

Customer:

if my mother in law owes taxes at the end of the year?

Randalltax :

The trustee of her estate will need to file final federal and state returns and pay the tax

Randalltax :

No matter when during the year she passes, she will be considered for tax purposes to live the entire year

Customer:

OK, thank you for your help

Randalltax :

Take care.

Randalltax :

If I have answered your questions, kindly press the Accept button to close this question.

R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 2882
Experience: Over 20 Years experience
R. Klein, EA and 2 other Tax Specialists are ready to help you

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R. Klein, EA
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