Your Life

Your Life

Major life milestones often have a major tax impact. Changes in your marital status, having a baby or adopting a child can have significant impact on your taxes. This is the place to ask questions about dependents, real estate, and other various scenarios that play a significant role in what taxes you pay.

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Pioneer
Posts: 1
Registered: ‎02-06-2013
Accepted Solution

Inherited Money from an IRA

I've getting some $ from as part of an IRA from a family members Estate. I don't intend to put this back into an IRA as I could use it for bills and work on my property. My question is how will this impact the taxes for 2013 when I have to file? I know it is going to be counted as income for that years return, but can I pay that portion of the taxes now when I cash it somehow or do I have to set up an account to hold the taxes untill it time to pay?

Associate (Council Member)
Posts: 2,518
Registered: ‎12-17-2012

Re: Inherited Money from an IRA

JBolduc,

 

Great question. I was hoping one of our community members had experienced something similar to this. Since you didn't get any responses I asked one of our Tax Institute professionals to review your question. As is usually the case, every situation is different and it's difficult to answer without all the details. Below is their response and it's lengthy due to a number of variables. I hope this helps!

 

"It seems like you may have been designated as a beneficiary under the terms of this IRA.  If this is the case, the IRA distribution should be reported to you as a beneficiary on a Form 1099-R.  Most of the time, IRA distributions like this one will be subject to mandatory 10% tax withholding.  The payer (the company preparing Form 1099-R) will normally assume that the entire IRA distribution is taxable when figuring the 10% withholding amount.  If you want to request either additional or less withholding on the distribution, you will likely need to make a request to the IRA custodian prior to the distribution.  The company holding the IRA may have its own process in place

 

If you are concerned that the withholding will not be enough to satisfy the tax liability, you may need to make estimated tax payments to cover the difference.  Estimated tax payments for 2013 would occur in quarterly installments by April 15, 2013, June 15, 2013, September 15, 2013, and January 15, 2014.  These payments would be accompanied with payment vouchers from Form 1040-ES.

A penalty may be owed where the total of withholding and estimated tax payments the taxpayer made did not equal at least the smaller of:

  • 90% of the your current year tax, or
  • 100% of the your prior year tax (the taxpayer's prior year tax return must cover a 12-month period).

 

Note: If you were not a designated beneficiary, the reporting documents you receive may be different.  For instance, instead of receiving a Form 1099-R, you may receive a Schedule K-1 (Form 1041) from your family member’s estate.  This form may then report taxable income to you as a result of the IRA distribution, and the fiduciary of the estate cannot pass through withholding to you as an estate beneficiary.  If this is the case, then you likely will need to make estimated tax payments for the year in order to avoid a potential underpayment penalty.

 

A designated beneficiary is typically the individual (or individuals) named within the actual IRA agreement as the person entitled to receive the funds following the owner’s death.  As discussed in the first paragraph, if you are the designated beneficiary then the distribution should report directly to you using your name and Social Security Number on Form 1099-R.  By contrast, if there is no designated beneficiary, or if an estate has been designated as beneficiary, the IRA distribution will first need to be reported on an estate income tax return (Form 1041).  Where the estate makes distributions to estate beneficiaries, it reports any income taxable to them using a Schedule K-1."


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Pioneer
Posts: 1
Registered: ‎02-04-2014

Re: Inherited Money from an IRA

We didn't get any of the forms listed below.  We got a W-4P and a W-9 form.  I use the on-line tax return and can not find where to include this information.  Any assitance would help.

Associate (Council Member)
Posts: 2,518
Registered: ‎12-17-2012

Re: Inherited Money from an IRA

Joseph,

 

Welcome to the Community. I haven't seen other discussion in the Community around this subject. Since you're using our online product you can ask technical or tax advice in the product with our free live chat feature. You can also email tax quotations within the product or call our digital product support team at 1-800-HRBLOCK (1-800-472-5625) with product question.

 

Thanks, JerryG


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Pioneer
Posts: 1
Registered: ‎03-08-2014

Re: Inherited Money from an IRA

My wife's mother died and she received beneficiary death benefit distributions for an IRA and a Mutual Fund. I was told that the only taxable portion of that is what the gains were from the time that she received it until it was sold. It was received and sold at the same time so there are no gains. We received the 1099-R's for each of those, but it is showing up as income in the program. How do I report this correctly so that it is not taxed? I cannot find a way to show that this is inheritance and not a regular IRA distribution. Thanks.

Associate (Council Member)
Posts: 1,925
Registered: ‎12-13-2013

Re: Inherited Money from an IRA

Hello GWBlakesley. Welcome to The Community.

I am afraid you were given some incorrect information. The general rule of thumb is, if it would have been taxable to the decedent, it is taxable to the beneficiary. As such, receiving a distribution from a traditional IRA as well as a mutual fund are taxable transactions. One thing you may consider doing would be to research through your mother-in-law's older tax returns to see if she deducted all she had contributed each year into her IRA(s). If there were any non-deductable contributions (indicated on Form 8606), this would lower the amount of "taxable" income realized in the distribution because she had a non-deductable basis. Note that this information would not be known by the institution that administered the IRA account, so the information can only be found in her previous years tax records.

Inheriting other assets such as cash on hand in checking/savings accouts are not taxable to the beneficiary except any income
realized after the date of the inheritance.

Sorry to be the bearer of bad news, but I hope this helps. Good luck to you.
WillMc1
Tax Professional (Retired)
Associate (Neighbor)
Posts: 849
Registered: ‎01-22-2014

Re: Inherited Money from an IRA

Good morning and welcome to the Community.

 

A W-4P and a W-9 are forms the financial institution needs filled out to tell them what you want withheld fromt he pension and who is getting it.  You fill them out when you get a job with your employer.  Those are not end of year forms.

Cindy Kowalski
Senior Tax Advisor 5
24 years experience
ROE
Pioneer
Posts: 1
Registered: ‎02-10-2015

Re: Inherited Money from an IRA

I INHERITED MONIES FROM AN ESTATE.  THERE WERE NO NAMED BENEFICIARIES OF THE ESTATE THEREFORE WE RECEIVE K-1'S.  BESIDES AN IRA THERE ARE OTHER INVESTMENT ACCOUNTS WITH MONIES IN THEM.  TO DATE, ALL OF THE MONIES WERE TAKEN OUT OF THE IRA - NOT AS A DISTRIBUTION BUT TO PAY BILLS WHEN THEY SHOULD HAVE TAKEN THE MONIES OUT OF THE OTHER INVESTMENT ACCOUNT TO PAY BILLS.  I BELIEVE THE SAYING GOES THAT YOU SHOULD USE ALL OTHER ASSETS BEFORE YOU TOUCH AN IRA.  QUESTION:  ON THE MONIES WITHDRAWN TO PAY BILLS, ARE THE BENEFICIARIES RESPONSIBLE FOR TAXES ON THE THE MONIES WITHDRAWN FROM THE IRA EVEN THOUGH THEY DID NOT RECEIVE IT?

Pioneer
Posts: 1
Registered: ‎02-28-2017

Re: Inherited Money from an IRA

I have an inherited IRA from my dad's 403B.  I took my first RMD and am trying to determine if I need to file a Form 8606.  If so, where can I find examples for my situation?  Thanks.

Pioneer
Posts: 1
Registered: ‎04-17-2017

Re: Inherited Money from an IRA

Hi everyone!

 

I have the same question about IRS form 8606 regarding an inherited IRA from my sister. 

 

I was the named beneficiary for my sister's IRA.  I took the first required distribution in 2016 and can't determine if I need to fill out IRS Form 8606 or not.  I have read the IRS 8606 instructions and Pubs 509a and 509b.

 

How can I determine the "basis" of the inherited IRA?  Do I have to get access to my sister's previous year's tax records to determine the basis of the inherited IRA?

 

Thank you for any help or guidance!

 

Patrick