Inheriting an IRA with siblings?

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Question about the tax liability for my deceased dad's IRA. As the executor, the $29k account was given to me, and I must now disperse it equally between us three children. 
My question is, how do I separate the specific fed/state responsibility aside from my roughly 50k income, as it all got taxed together as income?
I want to be fair with my siblings, but I also don't want to be penalized for having the additional tax liability on top of my income. 
Thank you. 

Best Answer

  • kiarab
    kiarab FreeTaxUSA Agent
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    Hello,

    Thank you for clarifying.

    In that case, I may suggest that you use the tax brackets. You mentioned that you made roughly 50K and then you had the IRA on top of it. I would look at what the tax bracket rate is for taxable income for your filing status. Your taxable income is found on line 15 of your 1040. Once you find that amount, subtract the IRA income to find the tax rate for your income. https://www.irs.gov/filing/federal-income-tax-rates-and-brackets

    And then times that rate by the amount of the IRA you got and that is the amount of taxes you paid on the IRA. For example, if you were a single taxpayer and your total taxable income was 45K before the IRA, then the IRA would be taxed at a 22% rate.

    You might be right at the point where some of the IRA is taxed a a lower rate and then the rest is taxed at a higher rate. For example, say that your total taxable income was $40,000 before the IRA and you are a single taxpayer. For a single taxpayer, income ranging from $11,001 to $44,725 is taxed at a 12% rate. Income from $44,726 to $95,376 is taxed at a 22% rate. So $4,725 of the IRA will be taxed at 12% and the rest of the IRA would be taxed at the 22% rate.

Answers

  • KristineS
    KristineS FreeTaxUSA Agent
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    Hi Slappy1,

    If you were the sole beneficiary by name in your dad's Will or on paperwork with the financial institution, any distribution you now make to your siblings will result in taxes due on the income to the IRS (and/or state). The distribution will be shown on Form 1099-R under your name and SSN alone.

    Have you already received the distribution? If not, speak to the plan administrator. They would be able to distribute this amongst the three of you.

    However, if you're already taken the full $29k distribution, you and your siblings might like to discuss some options. 

    You could each take a portion of the distribution on your separate tax returns, and pay any resulting tax. You'd need to share the 1099-R information with each of them. Including a note to the IRS listing out the portion and under whose name and SSN received what amount would help when the return(s) are filed. That might be best handled by paper filing your tax return. 

    You might decide to take one distibution in your name only (sounds like that may have already happened?) and agree between the three of you to hold back a portion to cover the additional tax on your return, so each sibling will end up getting less, but perhaps more even?

     

  • Slappy1
    Slappy1 Member Newcomer
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    That's kind of a standard answer that's not for my particular situation. Yes, I've received the distribution and paid the taxes as part if my income. My question is, how do I filter the EXACT tax liability, without calculating my portion from other income so I can distribute the fair remaining amount to my two siblings?

  • Slappy1
    Slappy1 Member Newcomer
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    Well thank you for clarifying by making it more confusing. That's the response I was looking for though.

    As I recall, in NY the brackets read like 22% +$465 of the amount over $45,729. But I guess it's calcuable. I'm confused though as to why the 29k IRA isn't taxed first before any of my annual income? This would make calculating the taxes easier and may not (at least for me) straddle two separate brackets causing more confusion.

  • KristineS
    KristineS FreeTaxUSA Agent
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    Hello again,

    The IRS takes all income into account to determine the initial rate of income tax. IRA income is not separated out from wages first, for instance. Separately, other tax rules may apply to certain income types such as capital gains tax, or the amount of social security income considered taxable.

    Glad you're able to separately calculate taxes if a bit cumbersome.