Feedback for the estate executor (inherit, states, years, legal)

[cdelena]

I am dealing with my recently passed mother's estate and see she still has 13K in a IRA so taxes are owed. I am thinking of selling all (I am authorized) with the proceeds into her taxed account so that the taxes are settled under her return and distribution is easier.

See any problem?

[borninsac]

Estate and trust income taxpayers have the same income tax rates as individuals but the higher rates kick in sooner. You really need to know this stuff or get a CPA or EA to help you make a tax-smart decision.

[PAhippo]

what's the alternative?


Hate to sound like a idiot but if it's part of the estate and she didn't leave any thing (as opposed to money) to someone, doesn't it have to be converted to cash, then taxed?

[cdelena]

Originally Posted by PAhippo

what's the alternative?


Hate to sound like a idiot but if it's part of the estate and she didn't leave any thing (as opposed to money) to someone, doesn't it have to be converted to cash, then taxed?

It is part of an estate to be distributed to six recipients.

I think there a couple of IRS options to retain the holdings and to spread the taxes over five years by the estate or the recipients.

In this case it is small enough I am looking to simply cash out and pay the taxes but looking for any insights I may not be aware of.

[Mr5150]

Originally Posted by cdelena

It is part of an estate to be distributed to six recipients.

I think there a couple of IRS options to retain the holdings and to spread the taxes over five years by the estate or the recipients.

In this case it is small enough I am looking to simply cash out and pay the taxes but looking for any insights I may not be aware of.

How much tax could be owed on $13,000? Me thinks thou art straining at a gnat. Mrs5150 (an estate planning attorney) suggests you get legal advice if you are that concerned. And since laws concerning estates vary from state to state, this is the last place you'd want to seek advice.

[ansible90]

There should be a beneficiary named on the IRA account. That is who gets the IRA money. It will get rolled into an "inherited" IRA for that person. No taxes unless the recipient cashes it out. But if your mom was over 70.5, the recipient will have to take required minimum distributions each year based on their own age.

Suggest you call the IRA company and ask what the options are.

[rjm1cc]

Originally Posted by cdelena

I am dealing with my recently passed mother's estate and see she still has 13K in a IRA so taxes are owed. I am thinking of selling all (I am authorized) with the proceeds into her taxed account so that the taxes are settled under her return and distribution is easier.

See any problem?

You did good to see the problem but it can get more complex.
First is she required to take an RMD (required minimum distribution). She is if she is over 70 1/2.

If she is not 70 1/2 +the IRA goes directly to the beneficiary listed on the account. The company holding the IRA can tell you who the beneficiary is. If no beneficiary it goes into the estate and you should liquidate
now.

If she has to take a RMD then you have to determine what the distribution is for this year and how much she has already taken. The company holding the IRA will know this. If she has not taken all of this years distribution you should have the company issue the estate a check for the balance of the RMD due. Not the 13,000.

This distribution goes on her 1040 final income tax return.

The remaining IRA (assuming no beneficiary) can be sold and the money goes into the estate. This will be taxed but I am not 100% sure how it is done. If you do not get a better answer I would put it on the estate's income tax return for the year. (form 1041)

You then distribute the assets of the estate according to her will. Makes no different that the money came from an IRA at this point.

Note the whole 13,000 does not go on your mother's 1040. Split between her final return and the estates income tax return (1041). The estate income tax return is not the estate tax return form 706. Probably no need to file this but you might want to give a little more info on stock and bonds, size of estate (under 5.4 million) etc. You could mention your state also.

If you happen to be the beneficiary of the IRA you will have an option of taking a RMD each year for the rest of your life (you have to start now not 70 1/2). The IRS has a table to calculate. You can also sell the remaining IRA and report the income on your return. (you do not report on the 1041 and your 1040, only taxed once)

Once you think you know what you want to do you should be able to call the IRS and confirm. The question is simple enough that they should give you the correct answer but if you are not sure call back a second time.

There is also a 5 year option.

[oldsoldier1976]

Originally Posted by ansible90

There should be a beneficiary named on the IRA account. That is who gets the IRA money. It will get rolled into an "inherited" IRA for that person. No taxes unless the recipient cashes it out. But if your mom was over 70.5, the recipient will have to take required minimum distributions each year based on their own age.

Suggest you call the IRA company and ask what the options are.

Bingo


OP this is the first place to start. If there is a beneficiary on the account that is who the IRA money is to go. If not then rjm1cc has the rules in his post. The amount of money you are talking about 13k will not have a large tax bite in the grand scheme of things. However it might consume nearly 50% of the IRA so be prepared for small checks to be given to the heirs.

[selhars]

And there may be state taxes also.

[borninsac]

$13,000 to 6 recipients is a small potatoes extra tax bill for each recipient; therefore, no need to get fancy with this one. So long as distributions from estate to beneficiaries occurs in the same year that the fully-taxable distribution occurs, there'll be no estate income tax associated with the IRA distribution.

Simple is most of the tax better unless we're dealing with big numbers.

Remember, estate does have to file and income tax return. The estate doesn't need to have a calendar year tax reporting period. This may or may not matter in your situation.