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Does inheritance of IRAs as a beneficiary into Mutual Bonds get taxed on federal income tax and state income tax in CA? Class A

Vista, CA |

I read exemptions to inheritance taxes are applied separately to each heir, would it be taxed and treated as income for beneficiary and are there exemptions for federal and CA in liquidating the Mutual Bonds from the estate to hier for a small estate under $45k in mutual bonds?

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Attorney answers 3

Posted

Sorry, but I cant follow your question. The money in IRA is what is call IRD - income in respect of decedent. These assets do not get a step up in basis on death and are taxed as ordinary income to the extent of withdrawals from the account.
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Please rethink your question and set it out more clearly

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Asker

Posted

Is there any way for an hier/beneficiary to avoid paying taxes on Mutual Bond Funds (they had inherited as IRAs and then put into the Mutual Bonds) inherited when withdrawing/liquidating those Mutual Bond Funds - that was my question. Thanks!

Charles Adam Shultz

Charles Adam Shultz

Posted

Again, the asset is not the issue. You can buy and sell as much as you want within an IRA without taxes. If you withdrew the funds from the IRA and have already incurred the income tax hit, that is an entirely different issue. AGAIN, if the IRA still hold the funds, you can liquidate them without issue. The only thing you are subject to are minimum distribution rules for the inherited IRA. Consult with you accountant or IRA plan administrator making property elections.

Asker

Posted

Is there a way to reduce the amount of taxes owed - is it at the adjusted gross income rate, treated as income? like liquidating them in smaller amounts, so as to not raise the tax bracket? Or to pay them over time in say 3 years before the mandatory distribution starts?

Asker

Posted

Also, what is the mandatory distribution amounts and is it also treated by the individual hier's adjust gross income tax rate and treated as income also?

Charles Adam Shultz

Charles Adam Shultz

Posted

I cannot give you tax advice. You need to consult an account or tax advisor for an opinion or direction how to proceed. The IRA custodian may be willing and able to review your options with you. All distributions from the IRA are treated as income to you and taxed at ordinary income tax rates regardless of the investments in the IRA

Asker

Posted

it was an IRA and put into a Mutual Bond Fund I believe. So to get that out it is treated or considered an IRA I suppose. Thank you!

Asker

Posted

I got the instructions to calculate the min. distribution - can a Benificary Bond Fund be turned into a trust, and what is the min. time allowed for a trust?

Posted

I agree with Mr. Shultz. It is not clear what you are asking. You mention three different sets of taxes and it is not clear what you are really concerned about. Estate tax and income tax are completely separate and you can have no liability for estate tax, but not be able to escape income tax. IRAs are almost always subject to income tax, unless they are Roth IRAs. This is because IRAs provide for a great deal of tax deferment, during the decedent's lifetime. The government wants to be paid its tax, at some point, however.

James Frederick

***Please be sure to mark if you find the answer "helpful" or a "best" answer. Thank you! I hope this helps. ***************************************** LEGAL DISCLAIMER I am licensed to practice law in the State of Michigan and have offices in Wayne and Ingham Counties. My practice is focused in the areas of estate planning and probate administration. I am ethically required to state that the above answer does not create an attorney/client relationship. These responses should be considered general legal education and are intended to provide general information about the question asked. Frequently, the question does not include important facts that, if known, could significantly change the answer. Information provided on this site should not be used as a substitute for competent legal advice from a licensed attorney that practices in your state. The law changes frequently and varies from state to state. If I refer to your state's laws, you should not rely on what I say; I just did a quick Internet search and found something that looked relevant that I hoped you would find helpful. You should verify and confirm any information provided with an attorney licensed in your state. I hope you our answer helpful!

Posted

You really should see a tax specialist on this. Your question is somewhat confusing, though. You are taxed on the value of your inheritance that you have received and not on the size of the estate that was distributed. State taxes are different than federal taxes.

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