Question on inheriting cash assets from an IRA

[pcumming]

Question on inheriting cash assets from an IRA

A parent recently passed away. I have no other living parent.

The estate is less than the unified credit so we are in good shape.

There is no real property. Only property (stocks, funds) are in a trust and they have recently been liquidated to cash. All accounts except 1 are Brokerage accounts and the beneficiary is the trust.

The only issue I have is that there is an IRA and I am the beneficiary-not the trust. The assets (stocks, funds) in the IRA have also been sold and are in cash in the IRA.

I am a non spouse inheritor. The parent did begin taking the minimum required distributions from this IRA years ago.

We have an Estate lawyer and we have a CPA who will take care of things. However I would like a 2nd opinion on something.

Person passed away at end of 2007 and did take all required distributions from the IRA for the year.

The IRA and other accounts will be taxed as part of the 1040 for 2007 and 1041 for 2008...(for the decedents estate).

Question: Is there a way for me to avoid any further taxes (as a beneficiary) on the IRA?

**I have read about setting up an inherited IRA, also read that that perhaps I can take a lump sum distribution and have it all taxed as ordinary income, or take an annual MRD distribution over MY life expectancy or take a distribution of all money within 5 years...

GOAL:

My goal is to somehow avoid the double taxation on this IRA since taxes will be paid once by my parents estate. (The parent who died was the last surviving parent).

----Or are my only options as indicated above (see *)?



Thank you very much

Peter

[banditfist]

My father passed away in November with the same situation:
1) IRA with me as a beneficiary

The only thing different was that he did take the 2007 distribution. But, that is just a minor matter for you.

You have what is known as a non-spousal IRA or a For Benefit of IRA.
The laws changed in 2006 to allow for this.

What does it mean? The IRA is now in my name. I have control over it. Each year, I will have to take a minimum distribution based upon the actuary tables tat predict my life span. For example, I am 35. If my life expectancy is 35 more years, then I will need to take 1/35 out in 2008. Taxes based upon my tax rate must be paid.

BUT!!! The rest of the IRA continues to grow tax free (until distribution time). This is still a great deal.

There is one other aspect that you should know. You do have the option at any time to take the entire distribution (and pay taxes on it), but you will not have to pay the penalty for early withdrawal that you would for an IRA you have and younger than 59 (or 57.5).

[jIM_Ohio]

Question on inheriting cash assets from an IRA

A parent recently passed away. I have no other living parent.

The estate is less than the unified credit so we are in good shape.

There is no real property. Only property (stocks, funds) are in a trust and they have recently been liquidated to cash. All accounts except 1 are Brokerage accounts and the beneficiary is the trust.

The only issue I have is that there is an IRA and I am the beneficiary-not the trust. The assets (stocks, funds) in the IRA have also been sold and are in cash in the IRA.

I am a non spouse inheritor. The parent did begin taking the minimum required distributions from this IRA years ago.

We have an Estate lawyer and we have a CPA who will take care of things. However I would like a 2nd opinion on something.

Person passed away at end of 2007 and did take all required distributions from the IRA for the year.

The IRA and other accounts will be taxed as part of the 1040 for 2007 and 1041 for 2008...(for the decedents estate).

Question: Is there a way for me to avoid any further taxes (as a beneficiary) on the IRA?

**I have read about setting up an inherited IRA, also read that that perhaps I can take a lump sum distribution and have it all taxed as ordinary income, or take an annual MRD distribution over MY life expectancy or take a distribution of all money within 5 years...

GOAL:

My goal is to somehow avoid the double taxation on this IRA since taxes will be paid once by my parents estate. (The parent who died was the last surviving parent).

----Or are my only options as indicated above (see *)?



Thank you very much

Peter

how is this a double tax? the IRA has not been taxed yet, has it?

[moneybags]

The IRA and other accounts will be taxed as part of the 1040 for 2007 and 1041 for 2008...(for the decedents estate).

The distributions from the IRA will be taxed on the '07 1040. The balance in the IRA should not be taxed on the decedents 1040 or 1041. It will be taxed when you take withdrawals. Since you, not the trust, are the beneficiary, it shouldn't go on the 1041 or be taxed by the estate. You will have to pay taxes on the IRA $$, as it has not been taxed before.

Also, I'm not sure why the assets in the IRA were sold. They can remain invested in non-cash funds. You can re-invest them in the same or different funds.

[pcumming]

Excellent Thank you all for assisting me.
Sincerely
Peter