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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4192
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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A 73 year old widowed woman has an IRA in her name & social

Resolved Question:

A 73 year old widowed woman has an IRA in her name & social security number. She has 2 adult children, who are equal beneficiaries on her will. The children are concerned about the PA state inheritance tax they will have to pay on the IRA when their mother passes. Would adding their names & SSN's on the IRA, prior to her death, alleviate some of that inheritance tax burden?
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Lane :

Sorry, please don't shoot the messengr here, but (from the PA dept of revenue here:https://revenue-pa.custhelp.com/app/answers/detail/a_id/988/related/1/session/L2F2LzEvdGltZS8xMzgwODk2MjM1L3NpZC85VVFYZVlCbA%3D%3D ): If the decedent was over 59 1/2 years old at the time of death, the IRA will be subject to inheritance tax. The rate of tax is determined by the relationship of the beneficiary to the decedent.

Lane :

As you may know the inheritance tax rate is determined by the relationship to the person who has passed (decedent) Let me look that up for you But, befofre I do that (IRA's that have pre-tax dollars in them - deduction was made for the contribution or maybe it was created through a rollover of pre-tax dollars from a 401(k) or other retirement plan - carry an income tax ... either to the owner, while alive OR to the beneficiary if the decedent dies with money still inside the IRA) ... SO not putting yourself on the IRA and having the tax paid on her last tax return and then pass to you through the estate MAY actually be the least costly way to do it .... WHY? Whatever estate tax is due will be due either way, and the beneficiaries MAY be in a higher tax bracket than the decedent.

Lane :

Income tax bracket, that is ... the INCOME tax that's paid on an INHERITED IRA is called Income in Respect of a Decedent (IRD)

Lane :

Finally, here are the tax rates (INHERITANCE tax rates) for PA:


The rates for Pennsylvania inheritance tax are as follows:



  • 0 percent on transfers to a surviving spouse or to a parent from a child aged 21 or younger;

  • 4.5 percent on transfers to direct descendants and lineal heirs;

  • 12 percent on transfers to siblings; and

  • 15 percent on transfers to other heirs, except charitable organizations, exempt institutions and government entities exempt from tax.

Lane :

So, the INHERITANCE tax rate for the tow children will be 4.5% , but again, there could also be income tax on the IRA (called IRD) to any beneficiaries

Lane :

One last thing: If you ARE put on the IRA as beneficiaries, you are not forced to pay the tax on any pre-tax dollars all at once, you have some options

Lane :

Here's an excellent article from Fidelity on the taxation of non-spouse beneficiaries of IRAs: https://www.fidelity.com/viewpoints/non-spouse-IRA

Lane :

I still don't see you coming into the chat session, so I'll move us to the "Q&A" mode. … Maybe that will help … (We can still continue a dialogue there, just not in real-time chat, as we can here)


Please let me know if you have any questions at all ...


Lane

Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 4192
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 7 other Tax Specialists are ready to help you
Expert:  Lane replied 1 year ago.
Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

What happens now?

If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.
Expert:  Lane replied 1 year ago.

Hi Scott,

.. just checking back in ... never saw you come into the chat.

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.

HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Let me know if you have ANY questions at all...

Lane
Expert:  Lane replied 1 year ago.
Hi Scott,


I'm just following up with you to see how everything is going. Did my answer help?


Let me know,
Lane
Expert:  Lane replied 1 year ago.

Thanks for the rating Scott.

I was just made aware that you can choose me as a preferred expert on your home page, if you like.

(noticed that some experts were getting a longer lock on questions when someone had asked for them).

..not necessary at all, but we've worked together well several times, and I just wanted to make you aware...

Regardless, thanks for the rating.

Lane

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