I inherited some accounts from my father and want to double check a few thoughts on taxes.
Taxable Account - Nothing really special here except I should have a new cost basis provided by the brokerage.
Roth - Need to take the money out within 10 years. I assume the goal here is to keep the money there as long as possible to avoid any capital gains on sales, taxes on dividends, etc. If I took it out now, I wouldn’t have any taxes on it but then I’d be paying taxes on any trades and dividends instead of getting a free ride for 10 yrs.
401K/Rollover deferred tax accounts - This will be taxed as income when I take it out and also is required within 10 years. I’m guessing the best strategy here is to plan the withdrawals when my income is lowest (since I will be retired within the next year or two).
The 10 yr withdrawal wouldn’t apply to a spouse but to children it does.
I inherited some accounts from my father and want to double check a few thoughts on taxes.
1. Taxable Account - Nothing really special here except I should have a new cost basis provided by the brokerage.
Providing it wasn’t in an irrevocable trust or other investment that doesn’t receive a new basis.
Hopefully, the brokerage will provide a correct cost basis. You will need to verify.
2. Roth - Need to take the money out within 10 years. I assume the goal here is to keep the money there as long as possible to avoid any capital gains on sales, taxes on dividends, etc. If I took it out now, I wouldn’t have any taxes on it but then I’d be paying taxes on any trades and dividends instead of getting a free ride for 10 yrs.
No taxes assuming that the ROTH is qualified. If it isn’t qualified then there could be taxable amounts.
3. 401K/Rollover deferred tax accounts - This will be taxed as income when I take it out and also is required within 10 years. I’m guessing the best strategy here is to plan the withdrawals when my income is lowest (since I will be retired within the next year or two).
The 10 yr withdrawal wouldn’t apply to a spouse but to children it does.
A reasonable plan is to distribute such that you minimize income taxes and also consider IRMAA if you will be on Medicare.
I should have a new cost basis provided by the brokerage.
Don’t count on that. Some brokers do, some don’t. Some can provide you a valuation report to help you out, but will put the old cost basis on the 1099B when you sell a security.
Follow the cold war maxim: Trust but verify. The first time you sell an inherited security, check out the 1099B very carefully to see what they report. And don’t be afraid to use the adjustment column on Form 8949 as needed to get the basis right.
If I remember correctly in my case, since the death occured on the weekend the new cost basis was determined by the average of the average prices on the Friday before and the Monday after the date of death. I believe I got that info from the IRS website.
nag
seems crass to be speaking in such direct terms, when a loss is so emotional, sorry for yours
Don’t count on that. Some brokers do, some don’t. Some can provide you a valuation report to help you out, but will put the old cost basis on the 1099B when you sell a security.
Follow the cold war maxim: Trust but verify. The first time you sell an inherited security, check out the 1099B very carefully to see what they report. And don’t be afraid to use the adjustment column on Form 8949 as needed to get the basis right.
–Peter
Vanguard specifically had a section asking how I wanted the basis calculated (can’t remember the options or why there were options) so hopefully they will give me something. Once I get everything, I will eventually move things out of Vanguard since my experience over the years with them have been pretty poor and I’d prefer to start consolidating my accounts to Schwab and Fidelity.
I forgot to add, along with the price on the date of death, records of the exact number of shares there were on that date should be kept (especially if the stocks/funds pay dividends).
Follow the cold war maxim: Trust but verify. The first time you sell an inherited security, check out the 1099B very carefully to see what they report. And don’t be afraid to use the adjustment column on Form 8949 as needed to get the basis right.
While I agree with Trust but verify, I wouldn’t wait for a 1099B, which could be years and account transfers/brokerage merger/acquisitions from now. The brokerage should have a way to check the cost basis for open positions, so do so, and bug them if they’re not right.
