ira acct taxation

[TrustUser]

i am an active trustee on my sister's credit union acct. in it, there is a separate ira acct. i know this is pre-taxed income. what i dont know is just how it works

she is retired, and only makes about 1500 total, from social security and some sort of pension or retirement acct

if she takes money out while she is alive, will she get taxed on it no matter what ? or does it get added into taxable income, and then looked at, in that way ?

such that if she was below the taxation line, she would not end up paying tax on it ?

also, if she dies with money in the acct, how is tax done ? is it added to the beneficiary's taxable income ?

 

[Taxing Matters]

i am an active trustee on my sister's credit union acct. in it, there is a separate ira acct. i know this is pre-taxed income. what i dont know is just how it works

she is retired, and only makes about 1500 total, from social security and some sort of pension or retirement acct

if she takes money out while she is alive, will she get taxed on it no matter what ? or does it get added into taxable income, and then looked at, in that way ?

such that if she was below the taxation line, she would not end up paying tax on it ?

With a traditional IRA (i.e. other than a Roth IRA) the distributions she receives from the IRA account are taxable income to her, just like wages, interest, dividends, etc. If her total income, including the IRA distributions, are below the filing requirement for her for the year then she'll pay no tax on the distribution. Note that she will have to take out the required minimum distribution (RMD) each year once she reaches age 72 (unless she reached age 70½ in 2019 or earlier, in which case she should already have started doing this). Failure to take out the RMD each year subjects the IRA owner to a substantial extra tax (penalty). So she can't just sit on it until she dies if she lives to at least age 72. For more on the RMD rules, see the IRS RMD FAQ page.

also, if she dies with money in the acct, how is tax done ? is it added to the beneficiary's taxable income ?

Then the beneficiary of the account will include in income the distributions he or she receives. In general, the IRA would have fully pay out the account in no more than ten years.

 

[adjusterjack]

she is retired, and only makes about 1500 total, from social security and some sort of pension or retirement acct

$1500 per month or $1500 per year?

 

[TrustUser]

LOL - my mistake - per month

 

[TrustUser]

thanks tm, there is only 45 in the acct. and i am pretty sure it is not a roth. it is from a federal credit union - i doubt if that makes any difference. they also pay her a point more if she keeps it in there. her son is much more apt to be at a higher income than her, and so more likely to be taxed on it. but she will need to start taking out an rmd before she dies. so i am trying to make sure he gets as much as he can.

 

[davew9128]

thanks tm, there is only 45 in the acct. and i am pretty sure it is not a roth. it is from a federal credit union - i doubt if that makes any difference. they also pay her a point more if she keeps it in there. her son is much more apt to be at a higher income than her, and so more likely to be taxed on it. but she will need to start taking out an rmd before she dies. so i am trying to make sure he gets as much as he can.

What is your interest in this at all? A retirement account belongs to the owner not the beneficiaries and they can do what they wish with it including distributing all of it and going on a world tour.

 

[TrustUser]

i dont like this tone used with others. you had better not use it again with me, buddy - i dont tolerate it for a second. either answer the damn question, like the other users have, or your keep your damn mouth shut !!

 

[adjusterjack]

LOL - my mistake - per month

Well, that's $18,000 per year so there may be a minimal amount of tax already payable depending on how much is social security and how much is pension. Additional distributions from the IRA could mean additional tax.

What is her age?

If she's at 71 1/2 she'll start taking the required minimum distributions. With only $45k in the account that should only amount to about $1700 per year. Tax on that at her income level would amount to roughly $170 in addition to whatever other tax she pays.

Those figures are rough estimates based on my own experience. I get about $20,000 per year in social security. I had a large IRA and for quite a few years I was taking chunks out to spread out the taxes and I still didn't have much of a tax bill. Maybe about $1000.

If that income has been consistent for the last year or two you should be able to review her 2020 tax return and see the trend and extrapolate forward with various amounts.

If she doesn't need to spend the money she can put it in savings which is what I did.

 

[TrustUser]

hi aj,

she is in a real bad mental state, and probably not gonna get better. ss is 1000, the other is 500. hopefully someone can get a poa for her. i may be able to look at the latest tax return - just depending on what sort of mood she is in. a crappy situation for all involved.

thanks for your input. she will be 70 on her next birthday, so rmds are right around the corner for her. assuming she lasts that long

 

[adjusterjack]

Are you and she on good terms? You might be the best candidate for a POA.

 

[quincy]

i dont like this tone used with others. you had better not use it again with me, buddy - i dont tolerate it for a second. either answer the damn question, like the other users have, or your keep your damn mouth shut !!

TrustUser, I think you might have taken offense at davew9128’s post when no offense was intended. Dave is a longtime member here and has been a valuable contributor.

 

[TrustUser]

yes and no. but i dont really want to be her poa - i have enough on the plate, as it is. i am watching over her money, as trustee. and her son is doing some stuff. but he needs to be in charge. i took charge for both my mom and dad. i have already done more than my fair share

 

[TrustUser]

TrustUser, I think you might have taken offense at davew9128’s post when no offense was intended. Dave is a longtime member here and has been a valuable contributor.

hi quincy, i dont think one person in a hundred would have taken it any differently than i did. if i could tell you bad thing about this site, it would be that several users ask questions in a very combative, accusative nature. i have gotten mad at others doing this before towards other people. other than that, i think you manage or own a very good site. that i am happy to play a small role in.
thank you

 

[quincy]

hi quincy, i dont think one person in a hundred would have taken it any differently than i did. if i could tell you bad thing about this site, it would be that several users ask questions in a very combative, accusative nature. i have gotten mad at others doing this before towards other people. other than that, i think you manage or own a very good site. that i am happy to play a small role in.
thank you

Oh! I don’t own this site, TrustUser. If I did, the forum would have a pizza place and a bar. And maybe a dog park. Haha.

I am sorry your sister is having health problems. You are a good sibling to be handling some financial matters for her. I am sure her son appreciates all that you do.

 

[TrustUser]

thanks quincy,

yea, times are not that good at the moment