Taxable distribution or non-taxable inheritance?

Forum|Forum|4 years ago
April 10, 2022
3 replies
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93 yr old mother in law died. Her children were equal beneficiaries of all accounts. An IRA she had was fully paid out to her children as a distrib. My wife rcd a 1099-R. I imagine this means it's taxable, although I thought inheritance was not taxable?

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ColeenD3

No, this isn't necessarily true. Cash isn't taxable. If the inheritance would have been taxable to the deceased, it is taxable to the beneficiary.

L

lrubin28Author

Employee

Thanks for the answer @ColeenD3

When you say it depends on whether it would have been taxable if she were alive - if she were alive and took out money from an IRA, wouldn't it be taxed as regular income? Or am I misunderstanding? I guess I don't understand in which case(s) would the distribution my wife received NOT be taxable? Thank you!

B

Bsch4477

Employee

Distribution from traditional IRA as opposed to a Roth IRA is taxed. Unfortunately the beneficiaries were not given the option of transferring the inheritance to their own IRA which would have permitted withdrawals over a 10 year period.

ColeenD3

Yes, it would have been taxable to her, so it is taxable to you. You are not an eligible beneficiary. Also, see this LINK.

An “eligible” beneficiary is your spouse, your minor child, a disabled individual, or any other person who is less than 10 years younger than you. That means you must follow the 10 year rule regardless of whether or not you have started your RMD‘s.

ColeenD3

Yes, the IRA distribution was taxable. I was just trying to differentiate when something would be taxable and when it wouldn't. Another example would be if you inherited a savings account. The money in the account itself, would not be taxable. The interest income on the account would.

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lrubin28Author

Employee

Thanks. TT wants to know how much was MRD which I'm having trouble finding out ...but... Does the MRD actually make a difference? I imagine the whole thing is taxable regardless?