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Ask Lane Your Own Question
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10172
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I meant 76000

Customer Question

I meant 76000
Submitted: 10 months ago.
Category: Tax
Expert:  Lane replied 10 months ago.

I hold a JD (Juris Doctorate, a doctoral degree in the law), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial & tax advice since 1986.

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Hi - I can help here

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A couple of questions which will facilitate the answer

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(1) Are you the spouse or a non-spouse?

(2) have you already take a distribution from IRA?

Expert:  Lane replied 10 months ago.

Let me know and we can from here

Customer: replied 10 months ago.
It is my mothers Ira I am the son. I have not taken any other distribution
Expert:  Lane replied 10 months ago.

Ok the you have two options, as a non-spouse beneficiary (hang with me here I want to pull up the regs)

Expert:  Lane replied 10 months ago.

First there's no 60 day rollover ... you should have the assets transferred to an inherited IRA (cleanest if you do it with the same custodian BUT you can move to another IRA custodian ... but you MUST do it as a direct transfer not a rollover)

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Then after that's done, you can either (1) pull the dollars out over a 5 year period (only being taxed on what's distributed in any one tax year) - AND there's no 10% penalty on inherited IRAs for distributing under 59 and 1/2 ... It's only added to taxable income

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or (2) you can also have it distributed over a life expectancy (also only being taxed on what's distributed in a given tax year)

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The tax code and IRS regulations allow the beneficiary two sets of distribution options for non-spouse inherited IRAs: 1) If the IRA owner dies before the required beginning date (RBD), the beneficiary can distribute the assets within five years of the owner's death, or over the beneficiary's single life expectancy or 2) If the IRA owner dies on or after the RBD, the beneficiary can distribute the assets over the longer of the remaining life expectancy of the decedent or the life expectancy of the beneficiary.

Expert:  Lane replied 10 months ago.

Was your mother older or younger than 70 and 1/2 when she passed?

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(This is that RBD date mentioned ... the date that would have to start taking Required Minimum Distributions)

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RBD stands for Required Beginning Date

Customer: replied 10 months ago.
I took it all in cash
Customer: replied 10 months ago.
My mother was over 90
Expert:  Lane replied 10 months ago.

Oh my ... So sorry, this is all added to the taxable income for the year taken ... if it's no longer IN an IRA

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The good news is that there's no additonal penalty (if you are under age 59 and 1/2)

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But now you're left with essentially finding other tax deductions to help offset the income.

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If you work, then you can always contribute more to your 401(k) ... If you are self employed you can contribute the max to a solo 401(k) or SEP ... and if you have no workplace plan you can contribute the max 5500, 6500 for those over 50) to an ira

Expert:  Lane replied 10 months ago.

But again, so sorry, there's no rollover allowed so getting back INTO an IRA doesn't work here.

Customer: replied 10 months ago.
I am retired so what is my best option for decreasing the taxes
Customer: replied 10 months ago.
I am 72
Customer: replied 10 months ago.
I don mind paying some taxes but I don't like to get raped
Expert:  Lane replied 10 months ago.

Please don't shoot the messenger here but the options are limited (again, because you've distributed the money)

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Since you have no earned income, the options above don't apply.

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As I mentioned above ALL of the options for limiting and/or deferring taxes on an inherited IRA begin with NOT distribution

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you CAN still do a Roth IRA, but there's no immediate deduction for that ... you'll simply be deferring taxes on it's growth

Expert:  Lane replied 10 months ago.

SO what you have now is NOT inside an IRA?

Customer: replied 10 months ago.
I thought I could give to my church the next question is how much could I give some to my children how much
Expert:  Lane replied 10 months ago.

That goes back to what I said earlier ... you'll have to fund regular deductions ... contributing to charity is always a deduction

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There is the option for making a charitable beneficiary, but again, you've already taken a distribution ... Now er're just dealing with things you can do with that CASH that would create a tax deduction

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And on the children there's no deduction there ... bet there IS the 14,000 per person per year that you should keep gifts to other UNDEER so as not to have to file a form 709 gift tax freturn

Expert:  Lane replied 10 months ago.

The amount you can deduct for charitable contributions can't be more than 50% of your adjusted gross income.

Customer: replied 10 months ago.
I know that but I cannot deduct a gift and how much would I have to give to charity
Customer: replied 10 months ago.
Gifts how does that work I don't want to pay uncle sam what about my kids as a gift
Expert:  Lane replied 10 months ago.

Then you're asking a questions that can't be answer any other way that the way I ansered it ... By taking the distribution in cash you've SEVERLY limited your ability to manage this

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Again, you are limited to finding other tax deductions to OFFSET the income that an IRS distribution causes

Expert:  Lane replied 10 months ago.

Gifts are not tax deductible

Expert:  Lane replied 10 months ago.

UNLESS given to a charity

Customer: replied 10 months ago.
How much would I have to give to acharity
Expert:  Lane replied 10 months ago.

The amount you can deduct for charitable contributions can't be more than 50% of your adjusted gross income.

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If you'd like to tell me the amount of your other income (and how you file ... married, single)I can then add the IRA to your other income to see what your AGI IS

Expert:  Lane replied 10 months ago.

The whateveto a charity r you DO give will benefit you based on your tax bracket ... to make the math easy ... If you are at the 25% bracket ... if you give 10,000 to charity, you will lower your taxes by $2,500

Expert:  Lane replied 10 months ago.

But remember ... until we get to a 100% tax bracket you can never create a deduction that offsets all of the taxes

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Also, may be stating the obvious here, but don't let the tax tail wag the dog ... better to have 75,000 in your pocket after pying 25,000 in taxes, than spend a dollar to save 25 cents

Expert:  Lane replied 10 months ago.

let me show you what the taxes look like if this were your only income (I'm assuming your filing status is single with no dependents)

Expert:  Lane replied 10 months ago.

Estimated Tax Analysis

Gross income$70,000

Qualified plan contributions-$0

Adjusted gross income=$70,000

Standard/Itemized deductions-$6,300

Personal exemptions-$4,000

Taxable income=$59,700

Tax liability before credits$10,719

Child tax credits-$0

Estimated tax liability=$10,719

... so you pay 10,000 in taxes to get this net 60,000 bank account

Customer: replied 10 months ago.
I agree no it is married no exemptions I have about 27000 social security
Customer: replied 10 months ago.
That's what I say
Customer: replied 10 months ago.
I am married and no exemptions my social security is about 27000
Expert:  Lane replied 10 months ago.

So, from a purely FINANCIAL perspective, keep it all ... that maximizes your net [WORTH]

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But if you want to lower the taxes ... you'll be spending (or giving away ) to save less than what you gave away.

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The ONLY thing that makes sense is to find things that you would have given away or spent money on anyway

Expert:  Lane replied 10 months ago.

Topic 500 - Itemized Deductions

The following topics are found in the category of Itemized Deductions. Each topic is followed by the corresponding topic number. To access your topic, select the three-digit number.

Should I Itemize?Topic 501

Medical and Dental ExpensesTopic 502

Deductible TaxesTopic 503

Home Mortgage PointsTopic 504

Interest ExpenseTopic 505

Charitable ContributionsTopic 506

Miscellaneous ExpensesTopic 508

Business Use of HomeTopic 509

Business Use of CarTopic 510

Business Travel ExpensesTopic 511

Business Entertainment ExpensesTopic 512

Work-Related Education ExpensesTopic 513

Employee Business ExpensesTopic 514

Casualty, Disaster, and Theft Losses (Including Federally Declared Disaster Areas)Topic 515

Expert:  Lane replied 10 months ago.

That's the FULL list of IRS itemized deductions ... each of those categories will break out to their list of deductions when you click on them

Expert:  Lane replied 10 months ago.

If you wanted to start a side business then buying equipment and furnishings for the business can be a deduction BUT if those assets don't CREATE income, then you've, again, just spent a dollar to save 25 cents

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If you had earned income, then you could put money into a retirement plan ... and THEN that lowers your income and you KEEP the $ ... but that's not an option here

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What your left with are things that ARE deductible that you actually need ... again, UNLESS, you just want to let the tax tail wag the dog as they say

Expert:  Lane replied 10 months ago.

I hope you'll rate me, using those stars or rating request on your screen, (that's the only way we get credit for the work here) based on thoroughness and accuracy, rather than any good news/bad news content ... But if there's something you don't understand, or if you have other questions about this, please let me know....

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Thank you,

Lane

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Expert:  Lane replied 10 months ago.

Hi,
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I’m just checking back in to see how things are going.
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Did my answer help?
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Let me know…
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Thanks
Lane