Inherited IRA

[DCLMP]

I know this is a long shot because it's not a common thing. Has anyone inherited an IRA well before retirement age. Tax law gives you 10 years to liquidate it. I was just wondering if anybody had dealt with this. How did you take the distribution's and how did you manage the taxes. Any loopholes to lower tax burden. The new law kind of stinks you used to be able to keep the money in an IRA until you needed it.

 

[jennab]

My husband has one, but it was inherited 11yrs ago, so I do not believe he has to liquidate within a certain amount of time. Does yours have a lot in it? He is only required to take the minimum distribution annually, which is less than $1000. Sometimes we take more just because. You can have federal and state tax withheld from the distribution; which I suggest, so you aren’t surprised at tax time. That is what we do.

 

[DCLMP]

Deaths after 2020 it's 10 years to liquidate. The laws all changed in 2019.

 

[dward1961]

I know this is a long shot because it's not a common thing. Has anyone inherited an IRA well before retirement age. Tax law gives you 10 years to liquidate it. I was just wondering if anybody had dealt with this. How did you take the distribution's and how did you manage the taxes. Any loopholes to lower tax burden. The new law kind of stinks you used to be able to keep the money in an IRA until you needed it.

If it were me and the RMD was going to have a big impact on the amount of federal and state tax you will need to pay, I would try to increase 401k, IRA and HSA contributions to off set the income.
I suggest you talk to your tax preparer or accountant for advice.

I know this is a long shot because it's not a common thing. Has anyone inherited an IRA well before retirement age. Tax law gives you 10 years to liquidate it. I was just wondering if anybody had dealt with this. How did you take the distribution's and how did you manage the taxes. Any loopholes to lower tax burden. The new law kind of stinks you used to be able to keep the money in an IRA until you needed i

 

[DCLMP]

If it were me and the RMD was going to have a big impact on the amount of federal and state tax you will need to pay, I would try to increase 401k, IRA and HSA contributions to off set the income.
I suggest you talk to your tax preparer or accountant for advice.

That's probably a good idea. No RMD's it just all has to be removed by 2032. Kind of stinks because the account is doing really well.

 

[jennab]

Deaths after 2020 it's 10 years to liquidate. The laws all changed in 2019.

Makes sense why ours isn’t that way then.

 

[jennab]

That's probably a good idea. No RMD's it just all has to be removed by 2032. Kind of stinks because the account is doing really well.

I’d say definitely have enough federal and state taxes withheld on your annual distribution. We’ve gotten hit a few times where we weren’t withholding enough and then owed in a little. So I’d do more than you think you need.

 

[gmi3804]

One thing to consider to avoid paying taxes, if you don't need the IRA proceeds: Donations. If there's a charity you want to contribute to, you can use the IRA to make the donation, and the liquidation won't be taxed.

 

[Frwinkley]

I have one that has to be liquidated in 10 years. I take a distribution each year, but will deplete the account next year, since our income will considerably less, thereby decreasing our tax liability as well.

 

[Tatebeck]

The only regular IRA we inherited it was liquidated right away and taxes withheld. The other was a Roth IRA we inherited and I am managing the stocks in it and will cash all of it out just before 10 years are up and take the cash as that will all be tax free.

If you have a year where you are making less money, or are going to have a large tax credit (buying an electric car that qualifies for example) then it may make sense to liquidate all or a large part of it that year. In our example my wife and I bought electric cars that year with large tax credits, so we decided just to take the hit.

If you just make the same every year, I would just take around 1/10th of it each year to get the lowest tax burden and try to keep you out of any higher tax brackets with it. Maybe weigh it slightly towards later years as the tax brackets and deductions typically go up over time.

 

[AlohaNow]

Someone above said it already, and I agree. If your income tends to be stable, look at taking out about 1/10th per year to smooth out the tax implications. Once the funds are in your hands post-tax each year, you can reinvest it in a number of ways. If you qualify for contributions into a Roth IRA, an HSA, or just a brokerage account.

On the charitable contributions that were mentioned, one must be over the age of 70.5 to take advantage of that, even from an inherited IRA.

 

[wabbott]

Here is the applicable IRS website.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary

 

[TCRAIG]

One thing to consider to avoid paying taxes, if you don't need the IRA proceeds: Donations. If there's a charity you want to contribute to, you can use the IRA to make the donation, and the liquidation won't be taxed.

Reminder - this works ONLY if you plan on itemizing your tax deductions…

 

[MillauFr]

Reminder - this works ONLY if you plan on itemizing your tax deductions…

Correct, or if you are 70.5 or older you can have the withdrawals sent directly to a charity and you won't have to pay the taxes on it. Even if you don't itemize.

 

[wabbott]

Correct, or if you are 70.5 or older you can have the withdrawals sent directly to a charity and you won't have to pay the taxes on it. Even if you don't itemize.

https://www.irs.gov/newsroom/qualif...ers-up-to-100000-in-tax-free-gifts-to-charity

Qualified charitable distributions allow eligible IRA owners up to $100,000 in tax-free gifts to charity

 

[tvguy]

Deaths after 2020 it's 10 years to liquidate. The laws all changed in 2019.

This. My mom passed in 2013 so I had the option of continuing the Required Minimum Distributions at the level she was taking them at. That is what I did. It is only about $2,700 a year before taxes. I use that money to pay my Long Term Care Insurance premium. And in the 11 years since she passed, the investments the money is in earning just a bit more than I am taking out, so the balance today is within a few dollars of what it was 11 years ago.

 

[DCLMP]

The only regular IRA we inherited it was liquidated right away and taxes withheld. The other was a Roth IRA we inherited and I am managing the stocks in it and will cash all of it out just before 10 years are up and take the cash as that will all be tax free.

If you have a year where you are making less money, or are going to have a large tax credit (buying an electric car that qualifies for example) then it may make sense to liquidate all or a large part of it that year. In our example my wife and I bought electric cars that year with large tax credits, so we decided just to take the hit.

If you just make the same every year, I would just take around 1/10th of it each year to get the lowest tax burden and try to keep you out of any higher tax brackets with it. Maybe weigh it slightly towards later years as the tax brackets and deductions typically go up over timeGo

Good advice. Our income is stable I'm about 10 years from retirement. I'm going to take some before the end of the year because we have a lot of tax write offs this year. Then I guess I'll figure out something for next year.

 

[Anthony1971]

I took a lump sum they withheld 20% for Fed taxes The overall rate was lower then 20% although I do not recall the exact percentage this as you can apply the 10 year rule tax rate or the tax rate is effectively lowered. Our overall fed Tax rate is higher than 20%. State was 0 as the taxes were paid when the money was contributed. This only applies if the owner was of retirement age and taking distributions.

 

[DawnM]

I am dealing with this now. My mom died in 2019 and then dad died in 2022. I have not had to take any out yet, however, one of his IRA accounts made me take minimal distributions.
Most of my dad's accounts were ROTH IRAs so we don't have to deal with taxes, but I have about 100k in a traditional IRA we will need to pay taxes on. We will just do it in increments.

 

[tvguy]

I am dealing with this now. My mom died in 2019 and then dad died in 2022. I have not had to take any out yet, however, one of his IRA accounts made me take minimal distributions.
Most of my dad's accounts were ROTH IRAs so we don't have to deal with taxes, but I have about 100k in a traditional IRA we will need to pay taxes on. We will just do it in increments.

Taking it in increments will likely lessen your total tax burden.