I find this question difficult to research. I have an inherited IRA account. If I sell a stock within the account and keep the cash in the account- am I subject to capital gains tax on the sale? I know I will include any funds withdrawn in my taxable income, but if it stays in the inherited account do I owe taxes? Thank for any assistance.
I find this question difficult to research. I have an inherited IRA account. If I sell a stock within the account and keep the cash in the account- am I subject to capital gains tax on the sale? I know I will include any funds withdrawn in my taxable income, but if it stays in the inherited account do I owe taxes? Thank for any assistance.
In this regard, an inherited IRA is just like a regular (any flavor) IRA. "What happens in the IRA, stays in the IRA.{
Ira
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I have an inherited IRA account. If I sell a stock within the account and keep the cash in the account- am I subject to capital gains tax on the sale?
No. Inherited IRAs are still like Vegas as far as buying and selling investments - what happens in the IRA stays in the IRA, with no capital gains impacts to taxes.
I know I will include any funds withdrawn in my taxable income, but if it stays in the inherited account do I owe taxes?
About those withdrawals - I will point out that if the original owner was not your spouse and they died on or after Jan 1, 2020, you only have 10 years after the death of the owner to fully disburse the account. If the death of a non-spouse owner was in 2019 or prior, you should already be taking RMDs, or you will need to fully disburse the IRA within 5 years of the owner’s death.
AJ
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Just a quick add to the above comment re: the 10-year time frame.
If the OP is still a youngster, the 10-year clock does not start until he/she reaches the proper age of 18 or 21 or whatever it is?? Please correct me if I’m wrong.
Happy new year all.
About those withdrawals - I will point out that if the original owner was not your spouse and they died on or after Jan 1, 2020, you only have 10 years after the death of the owner to fully disburse the account. If the death of a non-spouse owner was in 2019 or prior, you should already be taking RMDs, or you will need to fully disburse the IRA within 5 years of the owner’s death.
What if the IRA was inherited by a non-spouse >10 years ago? Can you just keep taking RMDs every year for life. (This was my assumption)
Mike
What if the IRA was inherited by a non-spouse >10 years ago? Can you just keep taking RMDs every year for life. (This was my assumption)
Mike
Rules don’t change for IRAs inherited before 1/1/2020.
What if the IRA was inherited by a non-spouse >10 years ago? Can you just keep taking RMDs every year for life.
Maybe not your entire life - just until your RMD reaches 100% or more. RMDs for inherited IRAs are calculated differently than RMDs for owned IRAs. The initial RMD is based on your life expectancy based on your age the year after the owner’s death. So, if you turned 55 the year after the owner died, your life expectancy would be 29.6 based on Table I of Appendix B. Each year after that, you reduce the life expectancy by 1 year - so by the time you reach 84 (29 years later), the life expectancy that you base your RMD on will be 0.6 years, which means that the RMD percentage will be 1/0.6 = 167% - so you have to disburse the entire account.
For owned IRAs, you just use the life expectancy in the appropriate table (usually Table III of Appendix B, but will be Table II if your sole beneficiary is a spouse who is more than 10 years younger than you) to calculate the RMD each year. The life expectancies in those tables are generally more than 1 (except some edge cases in Table II where you are both older than 112), which means then RMD percentage will be less than 100%
AJ
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, if you turned 55 the year after the owner died, your life expectancy would be 29.6 based on Table I of Appendix B. Each year after that, you reduce the life expectancy by 1 year -
AJ,
Thank you, I don’t think I ever knew this. Fortunately, I been rounding up and except for $10 in 2021, distributions are okay.
Thank you, I don’t think I ever knew this.
It’s in one of those places in 590-B https://www.irs.gov/pub/irs-pdf/p590b.pdf that most people’s eyes have glazed over by the time they reach it. From pg 12:
Other designated beneficiary. Use the life expectancy listed in the table next to the beneficiary’s age as of his or her birthday in the year following the year of the owner’s death. Reduce the life expectancy by 1 for each year since the year following the owner’s death.
AJ
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>>, if you turned 55 the year after the owner died, your life expectancy would be 29.6 based on Table I of Appendix B. Each year after that, you reduce the life expectancy by 1 year -
AJ,<<
Thank you, I don’t think I ever knew this. Fortunately, I been rounding up and except for $10 in 2021, distributions are okay. - vkg
Not sure I follow, but if it is the 29.6 as in AJ’s example and you round that up to 30, when you use that as the denominator in your your RMD calculation, your resulting amount would less than required had you divided by 29.6.
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Not sure I follow, but if it is the 29.6 as in AJ’s example and you round that up to 30, when you use that as the denominator in your your RMD calculation, your resulting amount would less than required had you divided by 29.6.
Adding to the calculated distribution and not the denominator. Using the corrected number, I was over $10 to $12 for two years and then under by $10 last year.
Thanks all. I am answering for the community in case someone else has a similar situation. I am always amazed at the depth of knowledge the group has. Crowdsourcing knowledge.
This was my Mother’s IRA, died in Jan 2019. I had my child, 21 yrs old at the time and just starting a career, inherit the account. My original thought was he could RMD from it for decades, as one of you pointed out, it may not be his lifetime, but for many decades. After taking a RMD in 2020 and thinking about it, we are going to liquidate the account in 2021-22, taking enough to stay in his current relatively low tax bracket.
I am thinking as his income rises, so probably will his tax rate stay the same or rise. At least that is the assumption I made. Since he is not buying cars, etc, but rather buying quality stocks with it, I feel that is a good plan.
Thank you all again.
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After taking a RMD in 2020 and thinking about it, we are going to liquidate the account in 2021-22, taking enough to stay in his current relatively low tax bracket.
An inherited IRA can’t converted to a ROTH but since he has earned income the distribution could be used to fund his retirement account whether it’s ROTH, TIRA, 401K, etc…
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