You have helped me in the past, and I hope you can help me now. Earlier this year my grandmother died and I will inherit. Inheritance is in two parts:
I am a bit confused about the impact of inheritance tax. My first question is about the IRA. I know the rules were changed a few years ago; therefore, I would like to know what my options are. I was considering taking the money, which is about $ 85,000 that I would use to pay off the debt. Do you think this is a good strategy?
As for Ford shares, I plan to sell the shares as soon as I receive them. Do I have to pay sales tax?
Thank you, Ted
You are right that the tax laws have recently changed when it comes to inheriting an IRA. In 2019, the Securities Act was passed, which affected the tax rules on inherited IRAs. Under this new law, you will generally be required to cancel your IRA account within 10 years. This abolished the rules that required at least year-round distribution. As long as the IRA is paid within 10 years, the distribution of any amount can be taken at any time.
When a distribution is made through a traditional IRA, the recipient of the distribution is taxed on that income as normal. So, if you closed the IRA and took a dividend, you would be taxed at $ 85,000. This can result in higher taxes and may exclude you from certain deductions and higher income points. Therefore, in most cases, I would not recommend taking a combination for one year.
I generally recommend taking the distribution based on your personal tax situation. In other words, just pick up enough annually to keep you on the same tax.
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As with any other tax law, there are exceptions. The main exceptions apply to the following beneficiaries: IRA landlord’s wife, individual who is not more than 10 years old IRA owner, IRA owner’s minor child, disabled and chronically ill. These beneficiaries can follow the 10-year rule or take advantage of the life-sharing rules that come into force before the Waiting Act. Unfortunately, in the current case, the exceptions do not apply.
With the sale of Ford shares, you may be able to pay some taxes. Your base price is the exact market value of those shares from the date of death. So, if you sold the stock for $ 14 per share and the date of death was $ 13 per share, then you would pay $ 1 per share tax. The sale of shares depends on the capital gains tax and any capital gains or even losses on the sale of inherited shares, are always considered long-term. Therefore, you are taxed at the level of good long-term capital gains.
It is important to remember that when you inherit as a non-IRA share, there is no tax on the inherited value. Your tax consequences are only when you sell the shares.
If you inherit an IRA, it is important to develop a distribution strategy. This leads to lower taxes, and as far as I’m concerned, the money you save looks better in your pocket than elsewhere.
Rick Bloom is just a financial advisor. His website is www.bloomadvisors.com. If you would like Bloom to answer your questions, email firstname.lastname@example.org.