Tax consequences of liquidating ira

One slip-up by the beneficiary, or even by the benefactor before death, and that tax gem can be lost forever.

For 2017, estates worth more than .49 million are subject to the estate tax, up from .45 million in 2016.31 of the calendar year following the year that the decedent died.If you miss that date, you default back to the five-year rule,” says Tully. He probably hadn’t gotten around to taking out his distribution yet.For substantial accounts, that can add up to a monstrous income tax bill — unless the IRA is a Roth, in which case, taxes were paid before money went into the account.Distributions from an inherited Roth IRA will be tax-free unless the account was established less than five years before — in which case, the earnings may be subject to tax.

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But because that person’s estate had to pay a federal-estate tax, you get an income-tax deduction for the estate taxes that were paid on the IRA.

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