tax on ira inheritance

[sierraray]

What is the name of your state? California

My Mom left an IRA that is worth $12000 there was no named beneficiary so the bank holding the IRA said they would pay out to the estate. That requires having an Estate bank account to be able to cash the check and distribute the funds to the heirs. I found out I would need to file for probate to do that or I could file a Small Estate Affidavit.
To expedite this already long process (my mom passed in 2018) the other heirs (there are four other heirs) are willing to sign an assignment of interest for their share giving me total distribution of the IRA. I would then get the money in my name and distribute it to them.
What will be the tax consequences to me doing this? I am retired and my taxable income last year was after deductions was about 18,500.
Should I request the bank withhold federal and state taxes on the IRA distribution when the issue the check?
thanks for any advice

 

[AlmostThere]

We will need more information.

What kind of IRA is it? Simple, Roth, etc?

How old was your mom when she passed?

How old are you?

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary

 

[sierraray]

Thank you for responding.
This is a simple IRA. My mom was 87 when she passed. I am now 73

 

[LdiJ]

What is the name of your state? California

My Mom left an IRA that is worth $12000 there was no named beneficiary so the bank holding the IRA said they would pay out to the estate. That requires having an Estate bank account to be able to cash the check and distribute the funds to the heirs. I found out I would need to file for probate to do that or I could file a Small Estate Affidavit.
To expedite this already long process (my mom passed in 2018) the other heirs (there are four other heirs) are willing to sign an assignment of interest for their share giving me total distribution of the IRA. I would then get the money in my name and distribute it to them.
What will be the tax consequences to me doing this? I am retired and my taxable income last year was after deductions was about 18,500.
Should I request the bank withhold federal and state taxes on the IRA distribution when the issue the check?
thanks for any advice

The best person to advise you on this would be the person who handles your taxes. They can run the numbers to be certain exactly where the extra $12,000 would put you. However, if your taxable income after deductions is $18,500 then most likely the majority of your SS benefits are already being included for tax purposes so its not very likely that you will have the issue of it bumping up the taxability of your SS benefits, therefore you are likely to be in the 12% tax bracket for federal taxes and then whatever your tax bracket would be for California.

I don't see how it would expedite the process however to handle it the way that you are proposing and depending on the incomes of the other parties there might be less taxes to pay overall if you each received the 2+ thousand that would be your respective share and paid your own taxes.

 

[Foamback]

Will the brokerage holding the IRA roll it into a new IRA for you? Then you would have ten years to use up the money, as per the IRS schedule

 

[Taxing Matters]

What will be the tax consequences to me doing this? I am retired and my taxable income last year was after deductions was about 18,500.
Should I request the bank withhold federal and state taxes on the IRA distribution when the issue the check?
thanks for any advice

If I understand your post correctly the IRA has in total $18,000 and that $18,000 will ultimately be divided five ways: you and your four siblings. That means $3,600 for each of you. That $3,600 by it self won't raise your taxable income all that much. If you have the IRA custodian pay withholding on that may end up being more withheld than there needs to be for you because your share of the $18,000 is just $3,600. If you want to prepay any extra tax that this distribution would cause I'd suggest you instead make an estimated tax payment for it after you split it to make the split very simple. If all your other income is the same as last year and there is withholding on that there may not be a penalty for failure to make estimated payments if you simply pay your tax when you file the return next. At worst that penalty (which, while called a penalty is really just an interest charge for you holding onto the tax money longer than you'd hold it if you make the estimated tax.

 

[Taxing Matters]

Will the brokerage holding the IRA roll it into a new IRA for you? Then you would have ten years to use up the money, as per the IRS schedule

The problem with that is the IRA was initially going to be paid to the estate, but now will be paid to the OP and the OP is going to divide it among their siblings. The IRA Custodian doesn't want to split it five ways; it wants to give the whole thing to the OP now. So the rollover is likely not something the custodian will be willing to do. More over, the 10 year period you mentioned starts in the year the IRA owner died, which was 2018. That leaves a little more than three years before the distribution would have to be made.

 

[Foamback]

Gotcha

On my third reading of this I think the OP is going to take the entire amount and then distribute the funds from her account.

That seems difficult to not hit herself with added taxes.

Too bad they can’t all get small individual rollover accounts. There must be some family dynamics at play

 

[LdiJ]

What is the name of your state? California

My Mom left an IRA that is worth $12000 there was no named beneficiary so the bank holding the IRA said they would pay out to the estate. That requires having an Estate bank account to be able to cash the check and distribute the funds to the heirs. I found out I would need to file for probate to do that or I could file a Small Estate Affidavit.
To expedite this already long process (my mom passed in 2018) the other heirs (there are four other heirs) are willing to sign an assignment of interest for their share giving me total distribution of the IRA. I would then get the money in my name and distribute it to them.
What will be the tax consequences to me doing this? I am retired and my taxable income last year was after deductions was about 18,500.
Should I request the bank withhold federal and state taxes on the IRA distribution when the issue the check?
thanks for any advice

Have you checked with the bank holding the IRA to see if they will do that rather than paying it to the estate?

 

[davew9128]

Will the brokerage holding the IRA roll it into a new IRA for you? Then you would have ten years to use up the money, as per the IRS schedule

A non-spousal beneficiary cannot roll an inherited IRA.

 

[Foamback]

You’re correct, what I was trying to say is create inherited IRA accounts. When my mother died MS created new separate inherited IRA accounts for my sister and I. My mother’s account was xxx, ours were xxx-01 and 02