You have helped me in the past and I hope you can help me now. Earlier this year, my great-uncle passed away and I am going to receive an inheritance. Inheritance has two parts:
I am a bit confused about the tax implications of my inheritance. My first question is about the IRA. I know the rules changed a few years ago; therefore i would like to know what my options are. I considered taking money, which is around $ 85,000, and using it to pay off my mortgage. Do you think this is a good strategy?
As for the Ford shares, I plan to sell them as soon as I receive them. Will I have to pay any sales taxes?
Thank you, Ted
You’re right that the tax laws about when you inherit an IRA have changed recently. In 2019, the Secure Act was passed affecting the tax laws on inherited IRAs. Under the new regulations, you are generally required to close your IRA within 10 years. This eliminated the rules requiring minimum payments on an annual basis. As long as the IRA is closed within 10 years, any amount may be withdrawn at any time.
When withdrawals are made from a traditional IRA, the person receiving the withdrawals is taxed on the money as regular income. Accordingly, if you close the IRA and take the lump-sum distribution, you will be taxed at $ 85,000. This can place you in a higher tax bracket and potentially disqualify you from certain deductions and credits due to your higher income. . Therefore, in most situations, I would not recommend taking a lump sum within one year.
In general, I recommend accepting withdrawals based on your individual tax situation. In other words, only charge every year to stay in the same tax bracket.
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Like any other tax law, there are exceptions. The main exception applies to the following beneficiaries: the spouse of the IKE owner, a person who is not younger than 10 years from the IKE owner, the minor child of the IKE owner, disabled and chronically ill people. These beneficiaries can either follow the 10-year rule or they can take advantage of the lifetime distribution rules that existed before the Safe Act. Unfortunately, there are no exceptions to the law in this case.
When it comes to selling your Ford stock, you will potentially pay some taxes. The basis for the cost of the shares is the fair market value of the shares at the date of death. Therefore, if you sell the shares at $ 14 per share and the value is $ 13 per share on the day of your death, you will pay tax on $ 1 per share. The sale of shares is subject to capital gains tax and any capital gains, or even losses resulting from the sale of inherited shares, are always considered long-term. Consequently, you will be taxed at a favorable long-term capital gains rate.
It’s important to remember that when you receive non-IRA stocks as inheritance, there are no inherited taxes. Your only tax consequences are the sale of the stock.
If you inherit an IRA, it’s important to develop a distribution strategy. This will lower your taxes, and as far as I am concerned, the money saved looks better in your pocket than anywhere else.
Rick Bloom is a paid financial advisor. His website is www.bloomadvisors.com. If you would like Bloom to answer your questions please send an email to firstname.lastname@example.org.