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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3759
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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my dad passed away and left me benificiary on his IRA 119,00$,

Resolved Question:

my dad passed away and left me benificiary on his IRA 119,00$, Im to split it with my two sisters. What tax percentage would i py on this or what do you suggest best for me
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

NPVAdvisor :

Hi,

NPVAdvisor :

With beneficiaries of IRAs who are not the spouse, you have a couple of options:

NPVAdvisor :

If the account is all pre-tax (meaning that any distributions must be included in the beneficiary's income for tax purposes) then any amount distributed ... pulled out of the IRA ... is just that, additional income for the beneficiary

NPVAdvisor :

Also you MUST distribute this money under those options I mentioned, so ( regardless of your intent to give some of the money to your siblings) the income tas ramifications are yours

NPVAdvisor :

You must take RMDs when you inherit an IRA. How you take them depends on whether the account owner died before, on, or after his or her required beginning date (RBD):



  • If the account owner died before the RBD, you may choose between two ways of calculating the RMDs—the life expectancy method or the five-year method.

  • If the account owner died on or after the RBD, you must use the life-expectancy method.

NPVAdvisor :

what this means is that you must take at least a certain amount out, and pay the tax (add the money to your taxable income for the tax year you take it out)

NPVAdvisor :

First the life expectancy method:

NPVAdvisor :

Life-expectancy method
The life-expectancy method requires that you withdraw certain minimum amounts annually according to calculations set forth by the IRS. You can always withdraw more than the required amount if you wish.

NPVAdvisor :

Now, the 5 year method:

NPVAdvisor :

Five-year method
The five-year method requires that you receive all assets in the account no later than the end of the fifth year following the year of the account owner's death. There are no minimum withdrawal requirements. You may withdraw assets at any time, as long you redeem the entire account by the end of the fifth year following the owner's year of death. This option is only available if the IRA owner passed away before the RBD.

NPVAdvisor :

Now, how do you calculate your RMD (Required Minimum distribution)?

NPVAdvisor :

Calculating your RMD


Your RMD is calculated using a "life expectancy" factor taken from IRS life expectancy tables. Nonspouse beneficiaries use the Single Life Expectancy Table, found in IRS Publication 590. Each year, the prior year's ending balance is divided by the applicable factor. If you are one of a group of beneficiaries, your RMD may be calculated using the life expectancy factor of the oldest beneficiary of the group. However, you may be able to use your own life expectancy factor if certain conditions are met. Because this calculation can be complex, I'd recommend you read the Special rules and consult with a qualified tax professional or attorney to determine the best course of action for your particular situation.

NPVAdvisor :

And finally IF the IRA owner had already started taking the Required Minimum Distributions, you may need to deal with that last required minimum distribution

NPVAdvisor :

Satisfying the final RMD


If the account owner's death occurred on or after his or her RBD, an RMD must also be withdrawn for the year of death. If the account owner did not withdraw the entire RMD prior to his or her death, then you and any other beneficiaries must withdraw any remaining RMD amount by the end of the year. If you're unsure whether the withdrawal has already occurred, contact Vanguard. (If the account owner had IRAs of the same type at other financial institutions, you may need to check their records as well because IRA owners are allowed to withdraw from one or more accounts of the same type to meet the amount of an RMD.)

NPVAdvisor :

Finally, just be sure that you understand that because YOU were named as the beneficiary the IRS will see these tax issues as yours .. the 1099s that will be sent from the custodian (bank, broker whatever) will have your name on them

NPVAdvisor :

In deciding how to split with your sisters be sure that you adjust the amount you give to account for (absorb) the tax that the IRS will be looking for you to pay

NPVAdvisor :

I still don't see you coming into the chat here ... I'll swith us to the "Questions and Answer" mode ... Maybe that will help

NPVAdvisor :

(We can still continue a dialogue there, just not in real-time as we can here)

NPVAdvisor :

Let me know if you have further questions

NPVAdvisor :

Lane

NPVAdvisor :

Ahhh there you are!

Customer:

Can i reject this ira, if so who would it go to

NPVAdvisor :

You can, by using something called disclaimer

NPVAdvisor :

In that case, the IRS will go to the estate, and the income tax will then be paid on the last tax return (or the 1041, which is filed by the estate)

Customer:

Can I roll this into my fiancees name and avoid any 1099 in my name

NPVAdvisor :

Then the proceeds will go by will... and if there is no will, by the state intestacy laws

NPVAdvisor :

No

NPVAdvisor :

Only Spouse beneficiaries can roll IRAs into their own name and indefinitely postpone the taxes

NPVAdvisor :

sorry

NPVAdvisor :

My advice here?

NPVAdvisor :

Don't let the tax tail wag the dog

NPVAdvisor :

Take the money set part of it aside to pay the taxes and then gift two thirds of it to your sisters

Customer:

I closed out my dads checking and banking, split it with my sisters, he owns his home ( no mortgage) so how would this go back to his estate. He does have a will and im his personal rep and everything was left to me except his home is in all three our names. Im nervous to take this IRA for tax reasons

NPVAdvisor :

Again lets say that you are in the 35% bracket ....

NPVAdvisor :

If the IRA is 100,000

Customer:

yes 119,000

NPVAdvisor :

set aside 35,000, pay the taxes

NPVAdvisor :

the split what's left among the three of you

NPVAdvisor :

would be quite simply to simply distribut... (the custodian will even withhold whatever amount you want... just ike with a W-2)

Customer:

then can i pay the taxes right away to avoid filing every year? Im on social security and havent had to file in over 7 years. would rather not start now...

NPVAdvisor :

Yes ... it WILL put you in a higher bracket for the year, but if you distribute it all in 2013, you'll just have an extra 119000 ofincome for this one year

NPVAdvisor :

How do you file... single or married?

Customer:

Im single but havent filed in over 7years, im on SS, my annual income is around 13,000$

NPVAdvisor :

OK so for this one year only, (first here are the tax brackets)

NPVAdvisor :


  • 10% on taxable income from $0 to $8,925, plus

  • 15% on taxable income over $8,925 to $36,250, plus

  • 25% on taxable income over $36,250 to $87,850, plus

  • 28% on taxable income over $87,850 to $183,250, plus

  • 33% on taxable income over $183,250 to $398,350, plus

  • 35% on taxable income over $398,350 to $400,000, plus

Customer:

I have 2 kids also, but hvnt filed taxes and hvnt needed too. I try to stay as far away from the IRS as possible.

NPVAdvisor :

Sorry but the really simple way here is just to have the taxes withheld, file this one year, and be done with it

NPVAdvisor :

even if it flows through the estate there would be enough income there that you'll need to file

Customer:

i thought so, thank you and i appreciate ur advice. Thats what im going to do

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3759
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 5 other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.
Thanks Tammy,

Just talk to the IRA custodian and have them withhold enough to cover your deferal and state taxes.

Then file this one time, split it up, if you want, and that'll be it

Hope this helped.

Thanks again,

Lane

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