beneficiary federal and state tax

[HR]

I live in Georgia and had asked back in January about estate taxes (I am the executor) - which I don't have to file because the estate isn't large enough. I had also asked as one of the beneficiaries if I have to claim any of the money I receive on my taxes and was told no that inheritance money is not taxable. I have received a 1099R from the bank where my grandmother's IRA (not RothIRA) was held. It shows the whole amount that I received in the box for taxable amount. Also I received a 1099INT from her former employer where she had a small life insurance policy in my name as beneficiary. It shows that I have to claim the interest. My question is do I have to claim both of these things on my taxes since they are in my name and social security number? Are IRA's and life insurance policies something that beneficiaries have to claim on their federal and state taxes once they inherit them even though inheritance money is supposedly not taxable.

Thanks for the help.

 

[dmode101]

IRA - yes, traditional IRA's are subject to income tax when distributed out to whomever. Remember, this asset has never been taxed before. It is called "income in respect of a decedent" (IRD). But, suffice it to say that the beneficiary who receives a distribution from a trad. IRA must pay tax on the full withdrawal. That being said (and there may be nothigny ou can do about it now), you may have gotten very bad advice to withdraw your entire share of the IRA immediately. Deepnding on the specific beneficiary designation, you probably had the option to take annual withdrawals over your table life expectancy, allowing much of the account to grow tax-deferred and spreading out the income over many years.

Life Insurance - the face value of the policy was (or should) not have been taxed. It sounds like some interest mya have accrued between the date of death and date of distribution -- that amount would be taxable income to you.

 

[advisor10]

FEB. 24, 2001

HR:

Yes, you do have to report both items, since these items have been reported to the IRS and your return may be rejected or your refund delayed if a computer review reveals the fact that these items weren't mentioned on the return.

If the property you receive later produces income (such as interest) then that interest is taxable to you. The IRA distribution falls into a special category (lump sum payment you received as a beneficiary represents an accrued salary payment that is considered "other items of income"). You may be able to choose optional methods to figure the lowest tax on this IRA by ordering IRS Publication 575, "Pensions and Annuities" in which the IRA topic will probably be covered, or consult a tax accountant or post a question to the tax law forum on this site.

SINCERELY,

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