taxation on inherited pre-tax monies

[TrustUser]

What is the name of your state (only U.S. law)? ca

does anyone have a url that talks about this ?

i realize this is mainly a federal issue, not a california issue.

if someone has a retirement account, whose funds have never been taxed (such as an ira, keough, pension), and dies.

what happens to it, for the person who inherits ?

i think the plan can be spread out over the lifetime of the beneficiary ? but it is still taxed ?

i would like to be a bit more informed on the subject, so that better planning decisions can be made. and especially find out if there is any way in which even a portion of it can avoid taxation.

thanks.

 

[tecate]

Google "income in respect of a decedent" for more info.

 

[anteater]

If it is pre-tax money going in, then it is going to be taxable when it comes out. The most that a beneficiary can do is to only take the minimum required and stretch out the tax deferral as long as possible.

For IRA's you can consult Pub 590:
http://www.irs.gov/pub/irs-pdf/p590.pdf

 

[anteater]

Google "income in respect of a decedent" for more info.

No! No! Not IRD! Don't use IRD on me! I'll tell you everything I know! I'll tell you who the insider is in the plot to kill Hassan! Just take the IRD away!

 

[TrustUser]

i do have a specific situation in mind, regarding my sister, her retirement plan (all non-taxed) and her son.

she is not sickly, but one never knows.

the first thing seems to be whether the heir is a spouse or not.

in this case, not.

either there seems to be a 5-year policy, or one that allows the beneficiary to claim with his own life span.

another question - when a person typically inherits a pension type plan, is that person usually able to keep the same pension plan ?

i would guess that most pension plans do not want to keep you on the books.

which would mean my nephew would need to have it distributed to somewhere else. if he took it personally, would he not have to pay tax on it all in the same year ?

that is what i want to avoid the most - at least have him pay tax on small incremental amounts each year.

 

[anteater]

The IRS allows for a rollover of every type of qualified plan I can think of to an inherited IRA for a non-spouse beneficiary.

IIRC, after non-spouse beneficiary rollovers were first allowed in 2006(?), there was a period where qualified plans were not required to offer the option. But I believe that the rollover option is now a required plan provision.

 

[TrustUser]

thanks anteater,

i guess i need to check with her plan directly, to see what it allows.

she is not forced to start taking distributions herself for another 11-12 years.

and we can make better secured interest within the account than we can in the same type of insured vechicle outside the account. so from that perspective, i would rather leave it in the account.

i think the best plan is to have her withdraw the minimum amount at the latest time, and then my nephew can do a rollover of some sorts, to minimize his taxation, if there is anything left.

to my knowledge, we have not yet learned our time of death - at least not most of us - LOL.

 

[anteater]

to my knowledge, we have not yet learned our time of death - at least not most of us - LOL.

Yes, I guess you could say that it is the ultimate in planning under conditions of uncertainty.