IRA taxes while living vs taxes as an inheritance
Mom has $10k IRA and is 94. Is it better to redeem the IRA CD and pay the tax at 10% now or wait until her passing an pay it with the estate or pass the IRA on to the inheritants?
Best Answer
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The basis of the IRA goes with the IRA - there isn't a step up at the time of death. Whatever your mother's basis is in her IRA will remain the basis after she passes. Any growth beyond her basis is taxable income to whomever the distribution is made.
Answers
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Your question requires knowledge of each party's current tax situation & in the future. We recommend consulting with a local tax attorney who specializes in estate planning for advice on how to best plan for your mother's retirement fund distributions.
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Mom's situation is quite simple with a low tax bracket, 10%. I think inherited IRAs are taxed as if ordinary income to the recipient whose tax bracket is unknown. But is their a step up tax exemption on the cost basis of the IRA and therefore only the growth beyond the basis is taxed?
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Thanks. That helps.