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Tax Information With A Mother's Touch Published by Eva Rosenberg, MBA, EA Volume 3 Issue 104 March 16, 2001 |
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 Inherited IRA From: San Diego, CA Dear TaxMama, I received a lump sum distribution last year from my deceased father's IRA and redistributed equal portions to my two siblings. I received a Form 1099R for the whole amount. Can I issue Form 1099R's to my two siblings for their portions? Sandy Dear Sandy, OUCH! Run, don't walk, to the nearest tax pro who understands how to read wills and estate documents. In fact, you should have done it BEFORE you took the distribution. An IRA is about the very worst thing in the world to inherit. The value of most assets you inherit jumps up to the assets' fair market value at date of death. So the heirs have no income taxes when they receive them or sell them. IRA's, however, have never been taxed (unless there were any non- deductible contributions). So, the poor unfortunate heir pays ALL the income taxes on it. Another ugly feature of the IRA (or the inheritance) is that unless the will/estate document says that the estate will pay all the income taxes on it, whoever INHERITS it will pay the taxes. Since you received the 1099R in YOUR name, it's quite likely that you might be responsible for all the taxes on the IRA. So you might want to pay those BEFORE you distribute the money to your siblings. In fact, worse, you might even have gift tax issues if you generously shared YOUR inheritance with your siblings. Inherited IRAs can be a real can of worms. ALWAYS see a tax pro before you do anything with inherited assets, money, investments, and especially IRAs. The few hundred dollars you might pay an expert are not only deductible costs, but can save you many times the price in taxes, headaches and frustrations. Since you are in California, I can recommend a couple of good tax attorneys or Enrolled Agents whose offices specialize in this area. Just ask! Sorry to give you such bad news. Whenever I see an older person with a large balance in an IRA or rolled over 401k or other such account, I start working with them immediately to find the least costly way to transfer money out of those assets while they are still alive. It saves their heirs and estate a fortune - and with medical expenses and other caregivers costs as people age, the income from the IRA distributions can often be completely TAX-FREE, if only someone thought about doing some planning. Best wishes, Eva Rosenberg |
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