Inherited Mutual Funds

[larrybr45]

We inhereted about $30k in mutual funds as my wife was a beneficiary. Her uncle had them in 9 different funds so each one has about $3k in it. These are not in any type of tax preferred structure like IRA etc.

Trowe price said we had to open an account in my wife's name, and move them (9 funds) to the same funds to avoid a tax "situation". I had asked them about moving these funds into a money market until we knew what we wanted to do. She said most people simply move the funds into the same mutual funds under the beneficiaries name to avoid a tax basis.

My questions are
1. Do we have to claim this $30k on our taxes somehow and pay tax on it?
2. If i wanted to move all these into a money market fund at Trowe price, would there be some sort of tax event?

thanks

[StellarSaver]

The person you spoke with at T Rowe Price is correct. In order to move the $30K into a money market account, you have to cash out (i.e. sell) the underlying mutual funds first, which means you'll pay capital gains tax (assuming the funds are worth more than when your uncle first acquired them). Your tax will be calculated based on the uncle's purchase price. In other words, you are inheriting his basis in the funds. If, on the other hand, you transfer the funds directly to an account in your wife's name and do not convert them to cash, there will be no taxable event, since you haven't realized any gains.

[larrybr45]

Thanks for the quick reply.

How do I find out that basis?

Also, someone had thought our baseline would start when he passed away ie. if the value of a fund was $20 on the date he died, that would be our basis, not the $15 he might have bought it for 10 years ago.

thanks

[MonkeyMama]

1 - Always take advice from the people who hold the investment with a grain of salt. It is in their best interest to have you keep the mutual funds. I consistently see terrible tax advice from investment brokerages. Usually advice that is in their best interest.

If I were in your shoes, I would absolutely sell all of the mutual funds and start over with cash.

With inheritances, the cost basis is generally the value at date of death. (Rules actually changed in 2010 - but new rules only affect large estates in the millions). I think it's safe to assume the cost basis = value at date of death. IT's hard to imagine any scenario where this would be a taxable event. The stock market is significantly down right now. & even if it does create taxes, the tax would be minimal. The tax would be 0% - 15% on any gain (Gain = sales price minus value at date of death).

[danieldroga]

Originally Posted by MonkeyMama

1 - Always take advice from the people who hold the investment with a grain of salt. It is in their best interest to have you keep the mutual funds. I consistently see terrible tax advice from investment brokerages. Usually advice that is in their best interest.

If I were in your shoes, I would absolutely sell all of the mutual funds and start over with cash.

With inheritances, the cost basis is generally the value at date of death. (Rules actually changed in 2010 - but new rules only affect large estates in the millions). I think it's safe to assume the cost basis = value at date of death. IT's hard to imagine any scenario where this would be a taxable event. The stock market is significantly down right now. & even if it does create taxes, the tax would be minimal. The tax would be 0% - 15% on any gain (Gain = sales price minus value at date of death).

I agree with monkeymama, just sell all of your mutual funds and convert them into cash since this will be helpful and offers a lot of advantages for the both of you.

[Michael01]

They are a good source of income for the people and they will surely benefit everyone who ever will invest in them.