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My wifes brother recently passed away without a will (8/10).

She is the excecutor of...
My wifes brother recently passed away without a will (8/10). She is the excecutor of his estate. She, her brother, and mother are named beneficiaries for his IRA, C/D's, checking and savings. What are the tax implications for money that is inherited in this manner? (The grand total is $200k.)
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Answered in 2 hours by:
3/1/2011
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,650
Experience: Taxes, Immigration, Labor Relations
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LEV :

Hi and welcome to Just Answer!

LEV :

Sorry for your loss...

LEV :

All income the decedent would have received had death not occurred that was not properly includible on the final return, is income in respect of a decedent.


 

LEV :

Generally - as a personal representative - you have a choice either the estate pays income tax on that income or it is distributed to beneficiaries who each report pro-rata share of the income on individual tax returns. In most situations beneficiaries tax rate is lower and the tax liability would be less.


Only net taxable income is reported to beneficiaries.

LEV :

For instance - C/D's, checking and savings - only interest is taxable. The distribution of principal is not taxable.

LEV :

For inherited IRA’s – the distribution would be taxable (as long as all contributions were from pre-tax money).


You may roll funds from his IRA’s into so-called inherited IRA account and delay distribution.


Generally - your options are:


-- You may take full distribution within five years of the death of the previous owner - not necessary in lump sum.


-- You may start to take Minimum Required Distributions based on your life expectancy.


In any case you might be able to reduce the tax pressure by spreading distributions over several years.


Let me know if you need any help or clarification.

LEV :

Please see IRS publication 559 - http://www.irs.gov/pub/irs-pdf/p559.pdf fro more detailed information.

Customer:

Is the IRA money taxable for both state and federal?

LEV :

Distributions from IRA accounts are taxable for both federal and for state. Only if some contributions were made with aftre-tax money - these amounts may be recovered tax free.

LEV :

You may spread distributions over several years and avoid large taxable income.

Lev
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