Can I offset the tax on an inheritance?

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Cara
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Can I offset the tax on an inheritance?

Post by Cara » Sat Mar 10, 2018 7:54 pm

I know there are at least a few questions about inheriting non-qualified annuities (as non-spousal beneficiary), but I think my questions is slightly different.

The first one to come my way, from my beloved aunt, is an amount < $10K (for me - I have siblings and cousins also inheriting, so I'm trying to learn about this for their benefit, as well). Approx 70% of the value is gain.

I was thinking, since I have a work-sponsored (education) 403(b) that I've not yet maxed out the generous tax-deferred contributions on - that I could take the lump sum and, as a result of having that additional $ in the bank, INCREASE my tax-deferred 403(b) contributions, until I deplete the inherited total.

Did that make any sense? In other words, take the money, divide by, let's say 9 (for the remaining months in the year) and have that amount taken from my pay and invested in the 403(b).

Does that decrease in my taxable income work to offset the tax on the inheritance?

Please be kind... !

livesoft
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Re: Can I offset the tax on an inheritance?

Post by livesoft » Sat Mar 10, 2018 8:01 pm

If you contribute to a tax-deferred account like a 401(k) or 403(b) through your paycheck withholding and making the contribution, then Yes, that will reduce your adjusted gross income (and taxable income) while the apparently taxable inheritance will increase your income.
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inbox788
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Re: Can I offset the tax on an inheritance?

Post by inbox788 » Sat Mar 10, 2018 8:24 pm

See if the money is comming from a taxdeferred account vs taxable. Look to see if qualifies for a stretch IRA.

"What Is a Stretch IRA?"
https://smartasset.com/retirement/what-is-a-stretch-ira

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grabiner
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Re: Can I offset the tax on an inheritance?

Post by grabiner » Sun Mar 11, 2018 2:53 pm

inbox788 wrote:
Sat Mar 10, 2018 8:24 pm
See if the money is comming from a taxdeferred account vs taxable. Look to see if qualifies for a stretch IRA.

"What Is a Stretch IRA?"
https://smartasset.com/retirement/what-is-a-stretch-ira
The OP probably doesn't need a stretch IRA. She can take out all the money right now, and increase her 403(b) contributions to use it all up over the next year or two. This will avoid any need to take RMDs on the money until she turns 70-1/2 (or during her lifetime at all if she uses the money to contribute to a Roth IRA instead).
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Cara
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Re: Can I offset the tax on an inheritance?

Post by Cara » Mon Mar 12, 2018 2:25 pm

grabiner wrote:
Sun Mar 11, 2018 2:53 pm
(or during her lifetime at all if she uses the money to contribute to a Roth IRA instead).
You had me until "Roth IRA." Then I don't lessen my tax burden NOW (which is when I make enough money to be concerned about income tax), right?

I think I got agreement that I can safely take the lump and offset the tax liability by increasing my 403b tax deferred contribs.

Thanks, everyone!

Dottie57
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Re: Can I offset the tax on an inheritance?

Post by Dottie57 » Mon Mar 12, 2018 2:48 pm

A friend of mine did the same on recommendation of fee only CFP. Drastically upped contribution to 403b to the max and then used inherited funds to live on. Reduced tax bite by a lot.

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grabiner
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Re: Can I offset the tax on an inheritance?

Post by grabiner » Mon Mar 12, 2018 11:51 pm

Cara wrote:
Mon Mar 12, 2018 2:25 pm
grabiner wrote:
Sun Mar 11, 2018 2:53 pm
(or during her lifetime at all if she uses the money to contribute to a Roth IRA instead).
You had me until "Roth IRA." Then I don't lessen my tax burden NOW (which is when I make enough money to be concerned about income tax), right?
This is correct. If you are in a high tax bracket now, you should use a traditional 403(b), but it is still better to put money in a Roth IRA than to leave it in a taxable account. (You can skip the Roth IRA if the money will go into a traditional 403(b) next year.)
Wiki David Grabiner

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