Author Topic: Taxes on inherited money  (Read 1161 times)

show me the money

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Taxes on inherited money
« on: February 16, 2022, 04:01:31 PM »
Hi all,

My mom passed in April of last year, we have received the bulk of what she left, but i have a question about the three inherited 401K/IRA. 

I have two siblings, and my mom had an IRA with one bank, a 401k with one employer and another 401k with a third employer.

First IRA my share is $10K and already moved into an inherited IRA that I have either 5 or ten years to withdrawal.

second 401k my share is $14k ish, that is already moved to my name, but they say I have to take the whole amount out 1 year after her death which is rapidly approaching.

and the third my share is 6K, and they wont release any of it until they have what I plan to do with it, so my siblings are bugging me.

I am trying to reduce the amount of taxes on these, my idea would be to just take the money out from both 401k's and increase my employer 401k to max it over the year to completely offset the money I'd get from her accounts. as well as max my IRA, and my wife's, or increase the amount that goes into her pension which I think is pretax to off set the two.

id like to just roll them over but that seems more of a pain if its even possible

Thank you for any help


secondcor521

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Re: Taxes on inherited money
« Reply #1 on: February 16, 2022, 04:50:17 PM »
My condolences on your loss.

Where did you get the idea that you only had five years to drain the IRA?  If you were listed as a beneficiary on your Mom's IRA, you probably have until the end of the year containing the tenth anniversary of her passing.  If she passed away in 2021, then you would generally have until 12/31/2031 to drain the account to zero.  While you can withdraw in any pattern you want over the next ten years or so, it is generally a good idea to even out the withdrawals over the ten year period so each year's withdrawal is kept in lower brackets as much as possible.

On the second 401(k), I would investigate if you can rollover the balance into an inherited IRA.  If you can, then I would expect that you could treat it in the same way as the previous paragraph.  There will be paperwork and some effort involved here, but the tax savings are probably worth it.

On the third account, I'm not sure what you mean by them not releasing it until they have what you plan to do with it.  Can you explain a bit more?  I don't think custodians can hold onto inheritances, generally speaking.

show me the money

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Re: Taxes on inherited money
« Reply #2 on: February 17, 2022, 07:04:45 AM »
Thank you, Secondcor521

i thought it was either 5 or 10 years to take it out.

i will try to see if i can roll over the larger 401k to an inherited IRA, fingers crossed.

for the third, what i mean is that the bank wont give my siblings their share until they have all three of our paperwork, so they are bugging me. i just want all this to be over with the banks, they have not made it easy. im thinking of just telling that small third to cut me a check for the 6k less the 20% they hold for taxes, and adjusting my 401k savings to offset the taxes.

thank you again

Sibley

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Re: Taxes on inherited money
« Reply #3 on: February 17, 2022, 07:45:07 AM »
Thank you, Secondcor521

i thought it was either 5 or 10 years to take it out.

i will try to see if i can roll over the larger 401k to an inherited IRA, fingers crossed.

for the third, what i mean is that the bank wont give my siblings their share until they have all three of our paperwork, so they are bugging me. i just want all this to be over with the banks, they have not made it easy. im thinking of just telling that small third to cut me a check for the 6k less the 20% they hold for taxes, and adjusting my 401k savings to offset the taxes.

thank you again

Do NOT withdraw that money just your siblings are annoyed - they are welcome to take their annoyance to the party responsible for causing it: the bank.

Figure out what you do with that money. Perhaps a rollover is an option?

Dicey

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Re: Taxes on inherited money
« Reply #4 on: February 17, 2022, 10:21:33 AM »
We were left in a similar situation after my parent's passing. So much conflicting advice was given. We focused on the entity that was most co-operative (Fidelity) and concentrated on moving everything there. We hired a CPA I knew who had worked for the IRS. He came with me to the other two entities. He calmly explained the rules to them and made it happen. It only cost around $1k and saved us all a shitload of time and taxes.

The "expert" attorney my co-exec. brother hired fIrst cost more than that and said it couldn't be done.

Five out of six of us still have our accounts with Fidelity.* The sixth recently declared bankruptcy, but that's a story for a different thread.

*Not necessarily optimal, but in my case, the money is earmarked for charity and Fidelity's DAF program is really user friendly and mustachian approved.
« Last Edit: February 17, 2022, 11:03:09 PM by Dicey »

Catbert

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Re: Taxes on inherited money
« Reply #5 on: February 17, 2022, 10:49:13 AM »
Quick google search seems to confirm that your can roll an inherited 401k to an inherited IRA.  Maybe you can double check with whatever financial institute you want the money to get transfered to.

Part of the issue is that 401K are governed by the rules of the company's plan and well as the Federal government.  Even through in theory you could leave money in a 401k and take out over 10 years per government regs, the plan might not allow it.  They want a one and done situation whether it's rolling it or distributing it or having multiple inheritors.  The plan rules might well require that it be out of the 401K by the one year mark. 

If I were you I'd roll the 14K 401k to an IRA and take distribution on the 6K.   Then strategize how to take out over the next 10 years.  As you mentioned taking out enough so you can fully fund your own IRA/401K is a good strategy.

ryan_themoneyguy

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Re: Taxes on inherited money
« Reply #6 on: March 09, 2022, 05:29:26 AM »
Rolling the 401k funds over into the inhertied IRA seems like the best bet. I'd suggest talking with a tax professional before doing so to ensure your taking best advantage of your tax options