ira and 401K inherit

What is the name of your state? Georgia
Do you have to pay taxes on IRA's and 401K's if you inherit them and the total inheritance is below normal taxable threshold? Also do you have to specifically address them in a will by name or are they considered as simply part of the estate?

nottelybill said:

What is the name of your state? Georgia
Do you have to pay taxes on IRA's and 401K's if you inherit them and the total inheritance is below normal taxable threshold? Also do you have to specifically address them in a will by name or are they considered as simply part of the estate?

Click to expand...

Generally each IRA and 401k has a specific beneficiary, and that is who inherits it. It passes outside of the estate.

There is no tax if you roll the money over into an IRA for yourself (that's new this year), and there is no penalty for early withdrawal.

Therefore yes, if your total income, including the inherited IRA or 401k is below the taxable threshhold for your filing status, then there would be no tax.

thanks, I had heard it was outside the estate but you can hear anything if you listen enough. Again thanks

There are multiple types of tax at issue. You do not pay estate taxes on an IRA/401k if your total estate is below $2M. You do not usually pay probate fees on an IRA/401k because they pass to the designated beneficiary. However, you do pay income taxes as you withdraw the money, because the original owner would have had to pay taxes on withdrawn funds.

As LdiJ said, you have lots of options as to when you withdraw funds. If you keep the IRA separate, you can pull out money whenever you need it without worrying about early withdrawal penalties, but if you roll it into another IRA you already have, there could be penalties for early withdrawal even if you only withdraw what you originally inherited.