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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22635
Experience:  Taxes, Immigration, Labor Relations
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Taxpayer with a regular IRA passes away (either before or after

Resolved Question:

Taxpayer with a regular IRA passes away (either before or after RBD). At the time of death the designated IRA beneficiary was "the Estate of (deceased.)"

Under whatever payout scheme is applicable due to RBD, is the Estate liable for the income taxes on the IRA distributions at the applicable Estate rate when the distribution(s) are taken OR, can the Estate administrator distribute the IRA assets to the heirs under a valid will and have the heirs responsible for the income tax on distributions taken thereafter(at their individual tax rates) under the applicable payout scheme?
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.
Hi and welcome to Just Answer!
Under whatever payout scheme is applicable due to RBD,
If the IRA owner died on or after the required beginning date (RBD) for distributions, an RMD must be distributed for the year of the owner’s death. If the IRA owner already took some distribution before the death - that amount is counted for RMD.

This requirement applies only if the account owner died on or after the RBD. If the IRA owner died before the RBD, there is no RMD which must be distributed for such year.

If the IRA owner did not designate a living person as a beneficiary and died before the RBD, then the estate is required to use the 5-year rule.
If the IRA owner did not designate a living person as a beneficiary and dies on or after the RBD, then the applicable distribution period (i.e. the original factor) for years after the year of death is based on the IRA owner’s age and life expectancy as determined of Dec 31 of the year of death and then this factor is reduced by one for each elapsed year.

is the Estate liable for the income taxes on the IRA distributions at the applicable Estate rate when the distribution(s) are taken OR, can the Estate administrator distribute the IRA assets to the heirs under a valid will and have the heirs responsible for the income tax on distributions taken thereafter(at their individual tax rates) under the applicable payout scheme?
The taxable distribution is included into estate's gross income.
If distributions are not made to beneficiaries - the tax liability is passed to beneficiaries (reported on schedule K-1 - http://www.irs.gov/pub/irs-pdf/f1041sk1.pdf) and deducted from the taxable income for the estate (form 1041 line 18 - http://www.irs.gov/pub/irs-pdf/f1041.pdf)
In most situations individual's tax rates are lower and it would be more beneficial to pass tax liability to beneficiaries.
In some situation the estate is required to pass tax liability to beneficiaries.

Let me know if you need any help.
Customer: replied 2 years ago.
I'm not sure I understand this: "The taxable distribution is included into estate's gross income.
If distributions are not made to beneficiaries - the tax liability is passed to beneficiaries (reported on schedule K-1 - http://www.irs.gov/pub/irs-pdf/f1041sk1.pdf) and deducted from the taxable income for the estate (form 1041 line 18 - http://www.irs.gov/pub/irs-pdf/f1041.pdf)"

Should the first sentence read: The taxable distribution is included into estate's gross income,
If distributions are not made to beneficiaries.
Customer: replied 2 years ago.
Then, it would make sense for that: "(T)he tax liability is passed to beneficiaries (reported on schedule K-1 - http://www.irs.gov/pub/irs-pdf/f1041sk1.pdf) and deducted from the taxable income for the estate (form 1041 line 18 - http://www.irs.gov/pub/irs-pdf/f1041.pdf)"
Expert:  Lev replied 2 years ago.
Sorry for typo
The taxable distribution IS included into estate's gross income,
If distributions ARE MADE to beneficiaries - they are deducted on the income tax return for the estate (form 1041, line 18).
Customer: replied 2 years ago.
Got it. One last clarification, if I might. Is the 'distribution' taxable to the estate by virtue of the date it is withdrawn from the IRA account(and, theoretically, paid out to the heirs) and that can be done under the scheme you outlined above...that is to say, perhaps over a multiple year period?
Expert:  Lev replied 2 years ago.
That is correct - funds are only taxable when distributed out from the IRA.
The RMD is a minimum amount that is required to be distributed - but the executor of the estate may distribute larger amount if needed.
The estate may spread distributions over several years and for each year will report the taxable amount distributed within that year.
Correspondingly - taxable income will be passed to beneficiaries for each of these years.
The amount distributed to the estate and not passed to beneficiaries - will be taxable for the estate in the year of distribution.
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22635
Experience: Taxes, Immigration, Labor Relations
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