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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11120
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am curious to know that if I take out an inherited ira

Customer Question

I am curious to know that if I take out an inherited ira from a deceased parent, what would the tax fee be and can I pay before the end of the year? what would the 72t be on 19,700?
Submitted: 8 months ago.
Category: Tax
Expert:  Lane replied 8 months ago.

Hi,

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The amount you withdraw will simply be added to your other taxable income for rhe year.

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So the answer depends on your other income. For example, using the tax brackets for married filing jointly,

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[Tax Rate Schedule Y-1, Internal Revenue Code section 1(a)]

  • 10% on taxable income from $0 to $18,150, plus
  • 15% on taxable income over $18,150 to $73,800, plus
  • 25% on taxable income over $73,800 to $148,850, plus
  • 28% on taxable income over $148,850 to $226,850, plus
  • 33% on taxable income over $226,850 to $405,100, plus
  • 35% on taxable income over $405,100 to $457,600, plus
  • 39.6% on taxable income over $457,600.

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You can see that if your taxable income were, say, at 50,000, some of the IRS would be taxed at 15% and some at 25%

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Bear with me and I'll rund the 72t for you

Expert:  Lane replied 8 months ago.

(by the way, there is never the addtional 10% pre-age 59 and 1/2 tax penalty on inherited IRA's regardless of your age

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Expert:  Lane replied 8 months ago.

The 72(t) Early Distribution Illustration helps you explore your options for taking IRA distributions before you reach 59½ without incurring the IRS 10% early distribution penalty. Internal Revenue Code (IRC) Section 72(t)(2)(A)(iv) defines these distributions as “Substantially Equal Periodic Payments”. The IRS has approved three ways to calculate your distribution amount: annuitization, amortization and required minimum distribution.

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You may choose any of the three methods on which to base your distribution amount. To avoid the 10% penalty once you begin distributions, you must continue to take the required distribution using the same method, at least annually, for the longer of five years, or until age 59½.

Expert:  Lane replied 8 months ago.

Rate Table Used ......................Amortization......Annuitization RMD2

Maximum Initial Distribution $822 ........................$819 .............$576

*Both the Amortization and Annuitization distribution amounts remain level from year to year.
*The Required Minimum Distribution is recalculated annually, increasing the required distribution amount.

Expert:  Lane replied 8 months ago.

The rules for an inherited IRA (for a non spouse beneficiary) are that you take out over your own life expectancy or within 5 years of date of death (specifically by dec 31st of the 5th year after death of the decedent).

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So simply pulling out over five years may be a way (1) easily to stay compliant, and (2) taking out in small emough piecees that you are not pushed into another tax bracket for the year withdrawn

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If you'll give me your age I can run the life expectancy distribution numbers.

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And if you'll give me your other household income (and how you file - single - jointly) I can tell you the tax implication of simply withdrawing .

Expert:  Lane replied 8 months ago.

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

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If this HAS helped, and you DON’T have other questions … I'd appreciate a positive rating (using the faces or stars on your screen, and then clicking “submit")

JustAnswer will not credit me for the work unless you do.

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Thank you!

Lane

I have a law degree, (Juris Doctorate), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, on three continents, since 1986