You may not have to pay as much as you think.
Did you recently inherit an IRA?
Someone very generous wanted you to have the money they had saved and invested.
You know you are a beneficiary, but what are the tax consequences?
According to a recent The Hampton Roads Business Journal article titled “You may be paying more tax on inherited IRA than required,” IRA rules can be confusing for many.
IRAs are different than other assets.
As such, they are under different distribution rules.
What are some of these?
IRAs cannot be jointly owned.
Ownership also cannot be transferred during the lifetime of the original owner.
Generally, IRAs will not be passed through a will but through a contract.
Although not free from taxes, there may be special tax breaks for beneficiaries.
What are the tax implications specifically?
IRA investment gains may be hit by both income and estate taxes.
Still, these gains may be exempt from the 3.8 percent investment interest surtax.
You, as the beneficiary, may be allowed a special deduction to help offset other taxes.
This deduction will take coordination between you as the beneficiary and the settling estate.
Typically, beneficiaries are taxed fully for the distributions.
Some may find shelter from the tax liability; however, this is easier to accomplish before the IRA begins paying you income.
IRAs can be complicated when it comes to estate planning.
If you have inherited an IRA, you should discuss the 691(c) deduction with your estate planning attorney.
If you have one or more IRA, work with an experienced estate planning attorney to incorporate your IRA into your estate planning in the most efficient way.
So, how do you find an "experienced" estate planning attorney?
First, ask around. Friends, family and other professional advisors are trustworthy sources.
Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "Estate Planning Anytown MoKan").
Third, either way, verify! Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.
How?
Two helpful online resources are just a mouse click away to assist with your due diligence: Avvo.com and Lawyers.com.
Check any Avvo ratings, client ratings/testimonials and attorney endorsements on Avvo.com and any "peer ratings" by judges/other attorneys and any client ratings/testimonials on Lawyers.com.
In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
Reference: The Hampton Roads Business Journal (October 30, 2017) “You may be paying more tax on inherited IRA than required”
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