Inheritance is getting complicated

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Cara
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Inheritance is getting complicated

Post by Cara » Mon Apr 02, 2018 10:04 pm

I previously posted in another forum about trying to lessen the tax impact of some inherited money (viewtopic.php?f=2&t=243955).

Turns out things are going to be a little more complicated than I first thought. I had planned to take lump sums wherever I could, and use that $ to contribute the max to my Traditional IRA and 403(b) to, essentially, defer any taxes caused by that inheritance.

Well, my beloved relative has left me more than I can contribute in a year to both (I can contrib $6500 to IRA and $24500 to 403(b), but am inheriting potentially close to $100K).

And, to make matters more complicated, it appears that the money is in a wide variety of account types: annuities, life insurance, 403(b), IRAs, etc.

If I take it all in a lump, I won't be able to get enough in my retirement accounts in the first year (because of their limits). Some of it would end up being taxed (most of it).

I believe that I have to ASK each financial institution contacting me, as a beneficiary, WHAT KIND of account my relative has left behind. But I'm getting a little overwhelmed with how to ask this (and am more than a little surprised that they don't just VOLUNTEER this info). They don't tell me what my amount is, or what kind of account, or what my receipt options are (until I get their forms, and some of their forms have letters that contradict the options listed on the forms, etc.).

What kind of account info should I be demanding from them? Do I need to know Trad vs. Roth IRA, qualified vs non-qualified annuity, or 403(b)? Is that pretty much all that I need to know to determine the best way to handle them going forward.

And - really - my bigger question: I'm getting the impression that, if I choose to do an "Inherited IRA" - I cannot combine the 4 or 5 of her accounts that will be annuities or 403b's or IRAs into ONE inherited IRA at Vanguard ... is that right? Would they all have to remain separate accounts?

I had my first "meeting" with a vanguard personal advisory service rep today and, though that went fine -- I am now thinking of moving EVERYTHING from Vanguard to Schwab or Fidelity. Not because of anything he did wrong, or anything I didn't like about the VPAS experience, but because Schwab and Fidelity both have more info on their web sites about inheriting assets and how to proceed than Vanguard does.

letsgobobby
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Re: Inheritance is getting complicated

Post by letsgobobby » Mon Apr 02, 2018 10:08 pm

All inherited IRAs can be combined.

Cara
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Re: Inheritance is getting complicated

Post by Cara » Mon Apr 02, 2018 10:40 pm

letsgobobby wrote:
Mon Apr 02, 2018 10:08 pm
All inherited IRAs can be combined.
Thanks.

letsgobobby
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Re: Inheritance is getting complicated

Post by letsgobobby » Mon Apr 02, 2018 11:00 pm

Just to be clear, all inherited Traditional IRAs can be combined, and all inherited Roth IRAs can be combined. Hope that was obvious.

OnTrack
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Re: Inheritance is getting complicated

Post by OnTrack » Mon Apr 02, 2018 11:23 pm

Cara wrote:
Mon Apr 02, 2018 10:04 pm
... to, essentially, defer any taxes caused by that inheritance ...
Just to be clear, what taxes are caused by the inheritance?

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Pajamas
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Re: Inheritance is getting complicated

Post by Pajamas » Mon Apr 02, 2018 11:48 pm

OnTrack wrote:
Mon Apr 02, 2018 11:23 pm
Cara wrote:
Mon Apr 02, 2018 10:04 pm
... to, essentially, defer any taxes caused by that inheritance ...
Just to be clear, what taxes are caused by the inheritance?
I was wondering the same thing myself, even after reading the other thread.

Cara, the 70% capital gains your aunt had accumulated in that one account of about $10k are irrelevant to you. The cost basis is stepped-up to the current market value at the time you inherit. Only capital gains accumulated after that date might cause you to have to pay taxes.

The required minimum distributions from tax-advantaged accounts and distributions from annuities and any income or realized capital gains from non-tax-advantaged accounts will incur tax.

You are right to be concerned about the future tax affects, and even for 2018 as far as distributions, but actually inheriting the money should not cause you to have to pay taxes on the value of the inheritance at the time of inheritance.

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BL
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Re: Inheritance is getting complicated

Post by BL » Tue Apr 03, 2018 12:01 am

Is this an inheritance shared with others (siblings, etc)? I would assume there is an executor or trustee that is handling this and would try to locate all the accounts if possible. It could be that that is the only person the brokerages would deal with until things are divided up. (If any of these accounts were gifts before her death, there could be tax differences from what I have mentioned here.)

All non-Roth IRAs and all Roth IRAs will have RMD withdrawals. You will have to find out what % that will be. There shouldn't be any tax consequences on Roth withdrawals, but withdrawals from the other IRAs would all be taxable at your tax rate.

If qualified, the annuities would be all taxable when withdrawn, assuming they are not in a Roth. If not qualified, there would be some combination of taxed and not-taxed because the amount originally put in would have been after tax was paid on it.

I would not expect any taxes on a taxable brokerage account (not a retirement account) as there would be a step-up in basis which would eliminate Capital Gains up to date of death. Any gains after that would be taxable long-term Capital Gains. Also I would not expect any taxes due on life insurance as of the date of death. Sometimes it takes a year or more to complete probate so things often do not happen quickly.

jalbert
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Re: Inheritance is getting complicated

Post by jalbert » Tue Apr 03, 2018 12:03 am

If I take it all in a lump, I won't be able to get enough in my retirement accounts in the first year (because of their limits). Some of it would end up being taxed (most of it).
If you are named as a beneficiary on the IRA and 403b being inherited, you can roll them into inheritance IRAs and spread the distributions out over many years based on the IRS formula for mandatory distributions from inheritance IRAs.
Index fund investor since 1987.

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celia
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Re: Inheritance is getting complicated

Post by celia » Tue Apr 03, 2018 4:59 am

Pajamas wrote:
Mon Apr 02, 2018 11:48 pm
Cara, the 70% capital gains your aunt had accumulated in that one account of about $10k are irrelevant to you. The cost basis is stepped-up to the current market value at the time you inherit.
As a slight correction, the taxable assets now have a stepped-up value (cost basis) as of the date of death. So you will need to find out how many shares she owned on the date of death and look up the value for that day. If there have been any additional shares added since then (interest or dividends), that part will be fully taxed to either the estate or to you. Hopefully there is an executor or trustee managing your aunt's assets and paying her bills. That person will have to file taxes for your aunt also.

I suggest keeping all taxable assets in taxable, all tax-deferred assets in tax-deferred, and all Roth in Roth. The only exception would be if your aunt was taking RMDs from the tax-deferred. If the RMD was not yet taken this year, it would have to be taken and be put in taxable before the account can be divided up for each beneficiary.

Be careful of taking any assets out of a tax-deferred account, since you will have to pay taxes on the withdrawals.

I wouldn't put any of the taxable assets into your own tax-deferred account at work since the taxable asset is worth more. See my signature below. Why would you want to pay future taxes on an asset that has already had taxes paid on it? You only have to pay yearly taxes on the interest and dividends, or when you sell, on the capital gains, not on the total asset. Dividends and capital gains are also taxed at a lower rate than withdrawals from a tax-deferred account.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.

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grabiner
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Re: Inheritance is getting complicated

Post by grabiner » Tue Apr 03, 2018 8:35 pm

Cara wrote:
Mon Apr 02, 2018 10:04 pm
If I take it all in a lump, I won't be able to get enough in my retirement accounts in the first year (because of their limits). Some of it would end up being taxed (most of it).
This won't be a great cost, as you can use it to max out your retirement accounts in future years. If you can invest $10K more after tax in your 401(k) each year, and you inherit $40K, you can put $10K into the 401(k) and $30K into a bond fund, then max out your 401(k) for the next three years as you spend the $30K from the bond fund on living expenses. You will pay three years of tax on the $30K but then get more tax-deferred growth.
Wiki David Grabiner

Cara
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Re: Inheritance is getting complicated

Post by Cara » Wed Apr 04, 2018 12:37 pm

Thank you for your patience with me, everyone. I probably shouldn't be in this forum because I come in, see all the thoughtful and educated responses, and my head starts spinning. I'm not as educated as I need to be about this, and am easily confused by the multitude of terms that I'm not accustomed to dealing with.

I had been thinking of INCOME taxes on my aunt's gains if I took all the investments as lump sums. Some of her accounts are qualified/tax-deferred, some are non-qualified/NOT tax-deferred -- most of the institutions I'm calling are giving me a percentage of my benefit as "taxable."

I don't want to leave the money were it is -- I'm not familiar with any of the companies she worked with, so I planned on taking it all and, likely, putting it into Vanguard or my 403(b).

This is why I assumed I'd take an INCOME tax hit in the year that I get these lump sums.

Now I know about "inherited IRAs," but I'm still not sure that ALL of her funds will be eligible to go into one and this process is really weird with some of the institutions and I'm not sure how difficult it will be to move the money -- sometimes, to avoid having to continue to deal with these weird annuity firms, I just want to get the $$ out quickly. NONE of these companies volunteer the information that you really need to know how best to move the money out -- as my brother speculates, because they DON'T WANT YOU to move the money out. I have to ask very specific questions about each one of about 10 accounts, and I don't always get a person on the line who knows how to answer the questions!

And, quite honestly, Vanguard isn't making it easy to move the money to them. I was sent "partially pre-filled" forms to open an inherited IRA, but it has to be printed, filled in by hand, and then MAILED back in (because I don't have a fax machine) -- so the account will likely take considerable time to set up. Fidelity, on the other hand, appears to allow you to open an inherited IRA instantly, online.

I'll read all your responses and thank you to all.

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Pajamas
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Re: Inheritance is getting complicated

Post by Pajamas » Wed Apr 04, 2018 12:44 pm

celia wrote:
Tue Apr 03, 2018 4:59 am

As a slight correction, the taxable assets now have a stepped-up value (cost basis) as of the date of death.
The date of death is the date of inheritance, unless there is a trust or similar and a later date is specified.

There is an alternate valuation date six months from the date of death that is sometimes used.
Last edited by Pajamas on Wed Apr 04, 2018 12:45 pm, edited 1 time in total.

aristotelian
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Re: Inheritance is getting complicated

Post by aristotelian » Wed Apr 04, 2018 12:45 pm

OP:
Please read the windfall wiki if you haven't already. https://www.bogleheads.org/wiki/Managing_a_windfall
Biggest thing is don't do anything rash. Take your time and make sure you understand the investments and your thought process before taking any action.

Take your time, talk to each institution, and don't be afraid to ask questions until you understand what they are telling you. The account types should be clearly listed. Post here if you have specific questions.

In general, lump sum distributions are a bad idea because you will trigger taxes all at once, possibly pushing you into a higher tax bracket, thereby losing more of the funds to taxes.

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BL
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Re: Inheritance is getting complicated

Post by BL » Wed Apr 04, 2018 12:47 pm

Things often don't happen quickly with inheritances. Leaving it there for up to a year is no great disaster. Leaving it for 20 years might be costly!

Not sure if you got how to get more into your work plan. It has to come from your pay, but you can afford to give up some of your pay if you have an extra 10,000 or whatever in your checking account that you got from the inheritance. So you are "moving" it to your retirement plan.

ICMoney
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Re: Inheritance is getting complicated

Post by ICMoney » Wed Apr 04, 2018 12:57 pm

Cara wrote:
Wed Apr 04, 2018 12:37 pm
And, quite honestly, Vanguard isn't making it easy to move the money to them. I was sent "partially pre-filled" forms to open an inherited IRA, but it has to be printed, filled in by hand, and then MAILED back in (because I don't have a fax machine) -- so the account will likely take considerable time to set up. Fidelity, on the other hand, appears to allow you to open an inherited IRA instantly, online.

I'll read all your responses and thank you to all.
Depending on how many pages you have to fax, you may be able to fax for free using "HelloFax", if you feel comfortable scanning and uploading the forms via their website for faxing to Vanguard. There are probably other free-fax companies out there as well, this is just the one I'm aware of.

Best,
ICM

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Pajamas
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Re: Inheritance is getting complicated

Post by Pajamas » Wed Apr 04, 2018 1:18 pm

ICMoney wrote:
Wed Apr 04, 2018 12:57 pm

Depending on how many pages you have to fax, you may be able to fax for free using "HelloFax", if you feel comfortable scanning and uploading the forms via their website for faxing to Vanguard. There are probably other free-fax companies out there as well, this is just the one I'm aware of.

Best,
ICM
Might be easier for her to go to an office supply store or mailbox store to fax in this situation. She's already stressed out by this.

NancyABQ
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Re: Inheritance is getting complicated

Post by NancyABQ » Wed Apr 04, 2018 1:45 pm

Cara wrote:
Wed Apr 04, 2018 12:37 pm
And, quite honestly, Vanguard isn't making it easy to move the money to them. I was sent "partially pre-filled" forms to open an inherited IRA, but it has to be printed, filled in by hand, and then MAILED back in (because I don't have a fax machine) -- so the account will likely take considerable time to set up. Fidelity, on the other hand, appears to allow you to open an inherited IRA instantly, online.

I'll read all your responses and thank you to all.
I think you might be better off with Schwab or Fidelity. I think they are better set up with customer support to help you step through things than Vanguard is.

I would recommend Schwab, but Fidelity is also probably fine. Does either of them have a convenient local office? You might go into the office to have them help you with the paperwork.

I would start with the straightforward things (taxable accounts, inherited IRAs, etc) and just go through them, one at a time. The annuities do seem more complex as far as understanding each one and what your options are. Don't let yourself get overwhelmed, just work through them one at time.

Don't commit to anything with the annuities that would be hard to reverse later (because as you suggest, they have a vested interest in getting you to leave the money with them).

I did an inherited IRA transfer at Schwab, and it did require more paperwork than a normal IRA transfer. That's the nature of the beast. But they can help you work through it.

jalbert
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Re: Inheritance is getting complicated

Post by jalbert » Wed Apr 04, 2018 2:33 pm

I just want to get the $$ out quickly. NONE of these companies volunteer the information that you really need to know how best to move the money out
You would benefit financially by exercising a little patience. You just need to tell the companies with the assets and Vanguard that you wish to do a direct rollover (via trustee-to-trustee transfer) to an inheritance IRA. You would send paperwork with this instruction to the current institution with the assets, and they would generate a check made out to something like Vanguard Fiduciary Trust FBO Jane Doe Inheritance IRA. Vanguard would be able to provide the precise language for the check.

You would either receive this check and include it with the paperwork to open the inheritance IRA account, or you would send the account paperwork to Vanguard first and the current institution would send the check to Vanguard directly. You may want to speak with Vanguard while filling out the paperwork to open the inheritance IRA account. It likely can be done online as well.
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BL
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Re: Inheritance is getting complicated

Post by BL » Wed Apr 04, 2018 6:19 pm

In the meantime, you could cash out your taxable (brokerage) (non-retirement) account and just put the money into your bank account for now. Then you are free to set up either a brokerage account or just buy some CDs at an online bank or Credit Union.

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Peter Foley
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Re: Inheritance is getting complicated

Post by Peter Foley » Thu Apr 05, 2018 10:42 am

If you can compartmentalize the inheritance a bit it might not seem so complicated.

Roth is Roth. Totally tax free. Cash it in and put it to use where ever you like if you want.

Taxable (aka non-qualified) gets a stepped up basis so there should be little implication regarding your taxes if you decide to cash everything in a move it elsewhere. If you like the assets (funds and stocks) you inherited you can just keep them.

Tax deferred (aka qualified - often an IRA or a 401k or 403b) can be complicated. Some retirement plans do not want to maintain accounts for beneficiaries so you may have to move the account to an IRA. In general, there are three approaches to taking funds from an IRA that you inherit. You can make it an inherited IRA and take required minimum distributions, you can take distributions over a five year period, or you can take a lump sum distribution. In many cases where the IRA is substantial the lump sum is the poorest choice because of the tax consequences.

Annuities - Some are qualified and some are non qualified. There may be restrictions in the contracts as to how any balances are distributed.

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Kenkat
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Re: Inheritance is getting complicated

Post by Kenkat » Thu Apr 05, 2018 11:04 am

In addition to organizing as Peter Foley suggests, I would also add:

Life Insurance - can be paid out tax free in most situations

I would also suggest that you think of this in three steps:

1) Cash out whatever you can if you can do so with acceptable or no tax considerations
2) Get the remaining assets retitled in your name at the existing institution
2) Move any assets you had retitled to Vanguard, Fidelity, Schwab or wherever you decide

I think it is too complicated to try to do the retitle and move at the same time.

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Re: Inheritance is getting complicated

Post by OnTrack » Thu Apr 05, 2018 4:15 pm

Peter Foley wrote:
Thu Apr 05, 2018 10:42 am
... Roth is Roth. Totally tax free. Cash it in and put it to use where ever you like if you want. ...
Might not want to do this. An inherited Roth can be retitled and kept as a Roth to continue the tax benefits.
Also, depending on whether the 5 year holding period has been met, earnings could be taxable.
https://www.bogleheads.org/wiki/Inheriting_a_Roth_IRA
Last edited by OnTrack on Thu Apr 05, 2018 4:22 pm, edited 2 times in total.

NancyABQ
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Re: Inheritance is getting complicated

Post by NancyABQ » Thu Apr 05, 2018 4:19 pm

OnTrack wrote:
Thu Apr 05, 2018 4:15 pm
Peter Foley wrote:
Thu Apr 05, 2018 10:42 am
... Roth is Roth. Totally tax free. Cash it in and put it to use where ever you like if you want. ...
Might not want to do this. An inherited Roth can be retitled and kept as a Roth to continue the tax benefits.
https://www.bogleheads.org/wiki/Inheriting_a_Roth_IRA
Agree. Unless the Roth is small enough to not be worth the hassle of maintaining it, I think keeping it as an inherited Roth as long as possible (I believe there would be RMDs) is the best way. It can grow tax free, and be withdrawn tax free. That makes it the most tax efficient of all the accounts.

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Re: Inheritance is getting complicated

Post by Sandi_k » Thu Apr 05, 2018 4:49 pm

NancyABQ wrote:
Thu Apr 05, 2018 4:19 pm

Agree. Unless the Roth is small enough to not be worth the hassle of maintaining it, I think keeping it as an inherited Roth as long as possible (I believe there would be RMDs) is the best way. It can grow tax free, and be withdrawn tax free. That makes it the most tax efficient of all the accounts.
Individually owned Roths are not subject to RMDs. Unless inherited Roths are?

NancyABQ
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Re: Inheritance is getting complicated

Post by NancyABQ » Thu Apr 05, 2018 5:22 pm

Sandi_k wrote:
Thu Apr 05, 2018 4:49 pm
NancyABQ wrote:
Thu Apr 05, 2018 4:19 pm

Agree. Unless the Roth is small enough to not be worth the hassle of maintaining it, I think keeping it as an inherited Roth as long as possible (I believe there would be RMDs) is the best way. It can grow tax free, and be withdrawn tax free. That makes it the most tax efficient of all the accounts.
Individually owned Roths are not subject to RMDs. Unless inherited Roths are?
Inherited Roths have RMDs.

Cara
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Re: Inheritance is getting complicated

Post by Cara » Thu May 03, 2018 8:35 am

With a little more information (still not sure if it's everything I need), permit me to be more specific. AFTER ALL OF THIS, I think what I most need advice on is how to handle the non-qualified annuities & "cash" accounts. I realize that I probably need to talk to a tax expert, but I'm having some trouble finding one locally that I trust and think I could work well with.

Permit me to lay out my (small) inheritance situation to see if anyone can clarify my options:
  • Hoping to retire early at age 60 in less than 4 years. Want this to help that goal as much as possible. I do not know whether I will be in a higher tax bracket when I retire – my husband is 14 years older than me. If he stays healthy and alive, my bracket will likely drop a bit (though it’s already low). Otherwise, it could shoot up, if I lose him and am filing single.
  • Already contributing the max allowed to my Trad IRA. Also have a Roth IRA.
  • Already contributing the max allowed to my work-based 403(b).
  • Already foolishly collected lump sums from a life insurance policy and a non-qualified variable annuity. Plan to set that aside to replace my budgeted 403(b) contributions for the remainder of the year so that the previously-allocated money can be used for other things.
  • Here’s what I’m concerned will impact my 2018 taxes, and want advice on handling:
    • Inheriting approx. $47K in “cash” accounts (mutual funds, CDs).
    • Inheriting approx. $20K in non-qualified annuities (one fixed, one variable). Need to clarify but institutions are volunteering that the gain on these is in the area of 60-70%. (I understand that the only gains relevant to my taxes are those made after her death.)
    • Inheriting approx. $6300 in a qualified variable annuity / Traditional IRA. Have already opened an inherited IRA with Vanguard and plan to move this there.
    • Inheriting approx.$5K in a pre-tax 403(b). I think can roll this into my aforementioned inherited IRA… ?
I need to get this inheritance somewhere where it can grow. I don’t want to have to pull it out or be over-taxed until it has grown some, if possible. Transferring non-qualified annuities into a new annuity of my own doesn’t seem to make sense, given the small amount that is now in annuities. If I could also add the “cash” amounts to a new annuity of my own, it might make more sense (even though I realize that I’m not helping my tax situation in any way on those cash portions).

donall
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Re: Inheritance is getting complicated

Post by donall » Thu May 03, 2018 9:52 am

Cara wrote:
Thu May 03, 2018 8:35 am

Permit me to lay out my (small) inheritance situation to see if anyone can clarify my options:
  • Hoping to retire early at age 60 in less than 4 years. Want this to help that goal as much as possible. I do not know whether I will be in a higher tax bracket when I retire – my husband is 14 years older than me. If he stays healthy and alive, my bracket will likely drop a bit (though it’s already low). Otherwise, it could shoot up, if I lose him and am filing single.
  • Already contributing the max allowed to my Trad IRA. Also have a Roth IRA.
  • Already contributing the max allowed to my work-based 403(b).
  • Already foolishly collected lump sums from a life insurance policy and a non-qualified variable annuity. 0 taxes on life insurance and taxes on gain from variable annuity. Contribute maximum to husband’s IRA. Continue all contributions until you retire.
    • Here’s what I’m concerned will impact my 2018 taxes, and want advice on handling:
      • Inheriting approx. $47K in “cash” accounts (mutual funds, CDs).
      • Inheriting approx. $20K in non-qualified annuities (one fixed, one variable). Need to clarify but institutions are volunteering that the gain on these is in the area of 60-70%. (I understand that the only gains relevant to my taxes are those made after her death.)
      taxable (20k x 70% is 14k times tax rate
      • Inheriting approx. $6300 in a qualified variable annuity / Traditional IRA. Have already opened an inherited IRA with Vanguard and plan to move this there.
      0 tax if rolled over
      • Inheriting approx.$5K in a pre-tax 403(b). I think can roll this into my aforementioned inherited IRA… ? 0 tax if rolled over

NotWhoYouThink
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Re: Inheritance is getting complicated

Post by NotWhoYouThink » Thu May 03, 2018 10:10 am

•Already foolishly collected lump sums from a life insurance policy and a non-qualified variable annuity. Plan to set that aside to replace my budgeted 403(b) contributions for the remainder of the year so that the previously-allocated money can be used for other things.
•Here’s what I’m concerned will impact my 2018 taxes, and want advice on handling:
◦Inheriting approx. $47K in “cash” accounts (mutual funds, CDs).
Maybe I'm not understanding your concern, but are you worried about tax being due on the insurance policy payment or the cash/CDs? Because these payments to you are not taxable. Any earnings you may have after you invest this money may be taxable, but the payments are not.

As to the non-qualified annuity, I'm not sure, but someone else can provide details on that.

This seems like a bit of a bookkeeping chore, but I don't see anything worrisome about your tax situation.

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BL
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Re: Inheritance is getting complicated

Post by BL » Thu May 03, 2018 2:09 pm

Inheriting approx. $20K in non-qualified annuities (one fixed, one variable). Need to clarify but institutions are volunteering that the gain on these is in the area of 60-70%. (I understand that the only gains relevant to my taxes are those made after her death.)
Any gains in annuities are taxable at ordinary tax rates, if I understand correctly. This is unlike Capital Gains, which are stepped up at death.
•Already foolishly collected lump sums from a life insurance policy and a non-qualified variable annuity. Plan to set that aside to replace my budgeted 403(b) contributions for the remainder of the year so that the previously-allocated money can be used for other things.
•Here’s what I’m concerned will impact my 2018 taxes, and want advice on handling:
◦Inheriting approx. $47K in “cash” accounts (mutual funds, CDs).
If the cash accounts are not in retirement accounts (IRAs, 401k, qualified annuities, etc.), that amount should be stepped up at date of death, so any gains since then would be the only taxable gains, AFAIK.
Do you have a person who does your taxes? That would be the place I would check when you get a handle on things.

I don't think it was foolish to collect from Life ins or the non-qualified annuity. What you do with it could be foolish. Sounds like you are planning to "blow" other funds elsewhere because you now have that extra money to "burn". I haven't heard of any plans to invest beyond 401k and Roth. I think you could also do a Roth for your husband, not positive about that. No harm in considering investing in Total Stock Market, Total International, tax-managed balanced fund, intermediate munis, I-bonds, CDs, etc. (some mix of equities and fixed income). You would need to look at what you and your spouse already have and what you want in IRAs, etc., to help decide.

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Re: Inheritance is getting complicated

Post by Cara » Thu May 03, 2018 3:10 pm

What you do with it could be foolish. Sounds like you are planning to "blow" other funds elsewhere because you now have that extra money to "burn". I haven't heard of any plans to invest beyond 401k and Roth. I think you could also do a Roth for your husband, not positive about that.
Not sure where you got the idea that I planned to "blow" other funds elsewhere, just because I'm reallocating them (to other savings). Guess I didn't think what would happen with those was relevant.

I don't have a 401K, I plan to continue the max contributions (24.5K) to my 403(b) and IRAs. I have "savings goals" for things like my next (used) car, my home improvements that may be needed before retiring elsewhere, my emergency fund and recurring expenses funds. Unfortunately, those are sitting in CDs and online savings accounts earning not enough.

In addition, I said, " I realize that I probably need to talk to a tax expert, but I'm having some trouble finding one locally that I trust and think I could work well with." I'm working on that.

I am not positioning any money into a Roth for my husband because (I will not go into explanations here) I don't intend to make any more money "joint" with him, at this time. The contributions to any spousal Roth would be in his name, but from my funds. Not doing that right now.

I am somewhat assured by the other posters' information about tax rates on gains and which gains are relevant, but still want to proceed cautiously while getting this money working for me as quickly as possible.

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sergeant
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Re: Inheritance is getting complicated

Post by sergeant » Thu May 03, 2018 10:58 pm

You will have little or no tax consequences from this inheritance. You don't need to be in a hurry to do anything. In reading between the lines I suggest absolutely not mingling the inherited assets with your husband.

And really this isn't complicated.
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not4me
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Re: Inheritance is getting complicated

Post by not4me » Fri May 04, 2018 8:31 am

Cara wrote:
Thu May 03, 2018 3:10 pm
I am somewhat assured by the other posters' information about tax rates on gains and which gains are relevant, but still want to proceed cautiously while getting this money working for me as quickly as possible.
I know you are getting somewhat conflicting info on the taxes. I haven't read everything upthread & this may be redundant. I would encourage you to seek professional advice. But, at the risk of contributing to the confusion, I'll throw in a couple of comments.

On Life insurance...lots of products out there & this is likely largely not taxable. I'm aware of some cases in which the distribution was greater than expected & included some taxable amounts due to way premiums had been handled. Also, depending upon the size of the payout & length of time between death & payment, it may include interest which is taxable.

On the variable annuity, my uneducated guess is that there are even more variations than life ins. In general though, I'd guess that this does NOT get a step-up in basis at death & you'd owe tax on amount over/above the basis. I'll use an example. If it was originally funded with $8k & grew to $20K at time of death (nothing having been distributed during life), then 60% of the $20k would be taxable (or, the $12K over the basis). That is not a tax rate of 60%.

dbr
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Re: Inheritance is getting complicated

Post by dbr » Fri May 04, 2018 8:43 am

I agree that your first step should be or should have been to consult a tax accountant to clarify your tax options. You seem to be assuming a lot of things about taxation that may not be true. You need a tax professional looking at each item in detail.

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