Imagine getting hit with a $500,000 tax bill just because you checked the wrong box on a form.
If you inherit an IRA, what you do next determines how much tax you will owe on your inheritance. Make a mistake and the entire IRA balance becomes taxable. In addition to owing Federal income taxes on the inherited IRA, you may also owe state income tax and possibly even estate taxes when you inherit an IRA from someone other than a spouse.
Tally it all up and half or more of the IRA could end up going to the IRS.
The average IRA balance varies by age, but for people over age 65 the average balance exceeds $212,000. In many cases IRAs can exceed $1 million or more during the IRA owner’s lifetime. A wrong move by the beneficiary could result in a gut-wrenching six-figure tax bill.
When you inherit an IRA, follow these three steps to avoid a tax disaster.
Most years the deadline to file your Federal income tax return is April 15th. This year you have a little extra time.
Since April 15th falls on a Saturday this year, you have until the following Monday to file your 2016 Federal Income tax return. However, this year Monday, April 17th, is a holiday known as Emancipation Day in the District of Colombia where the U.S. Department of Treasury is located.
“If there’s one thing I love to do on a weekend, it’s to bury myself with papers and receipts, dive into a stack of IRS Publications, and go to work on my tax return,” said no one. Ever.
Minnesotans are a generous bunch. A recent survey by WalletHub ranked Minnesota as the third most charitable state in the nation. We jump to #2 when you throw volunteering and service time into the mix.
While gifts of cash are always welcome (and usually tax deductible) at most non-profits, if you are looking to juice up your giving this year and get the biggest after-tax bang for your charitable buck, consider the gift of stock or a mutual fund instead.
Uniform Transfer to Minors Act or UTMAs offer parents, grandparents and others a tax efficient, flexible way to make financial gifts to their kids or grandkids. Like most investments there are pros and cons.
Before you open or add to a UTMA account for your kids or grandkids there are some things you will want to consider.