Does anybody have any decent info on the tax treatment of money left in an IRA account at death?  I know that this is an out there kind of question, but there are so many intelligent folks amongst us, I'm hoping to get some help.

Thanks

the Beneficiary of the IRA or is it payable to the Estate or Trust first?  If you are the Beneficiary of the IRA, then you have a number of options.  You can take it as a Lump Sum (all) at once, or over a period of years.  When you withdraw an amount from an IRA, it is taxable income to you.  Thus you may want to take it out  over a term of years.  Under certain situations, you can take it over your lifetime.  However, you should decide on a course of action w/i a year of the Date of Death (DOD).  If you fail to start withdrawing it w/i yr of DOD, then you must withdraw w/ 5 yearts of DOD.  Confused yet?  If the IRA is payable to the Estate or a Trust, then the IRA must be fully withdrawn w/i 5  yrs of DOD.  Thus, do not let the yr pass without  deciding course of action!!!

-- Modified on 6/9/2005 6:27:52 PM

-- Modified on 6/9/2005 6:33:08 PM

I believe you have a certain period of time to liquidate the 401 K assuming that it was left to you in their will.  I think it is 3 years.  Once liquidated, and it can be partially liquidated during that 3 year term, that money then becomes taxable income on your tax return.  Consult tax attorney, this was from a few years back.
Sorry for your loss.

-- Modified on 6/9/2005 6:37:12 PM

If you are married to the decedent, then you can avoid all the estate and income tax problems. Otherwise,

It is part of the estate for estate tax purposes.

For Income Tax purposes, when you withdraw the money, it is taxable to you, although there might be estate tax offsets to the income tax liability. Depending on the tax situation, and amount, it might be possible to withdraw the money as part of the estate, and have the income taxable to the estate. As mentioned by others, there are requirements on how fast you must withdraw the funds.

If it is a roth IRA, then there are no income tax consequences.

In my personal experience as holder of a beneficiary IRA it does not have to be taken out (and taxed) quickly.  Can be done over your life expectency if you prefer, thus spreading out the tax burden.  Good advice to check with institution holding the funds.

Thanks for the kind words, but the question was asked by my mother, who is, thankfully, still very much alive.  She and my father are at the age where they are withdrawing funds each year, but she's concerned that if there is money left when they pass, it will become a tax burden for the beneficiary.  They can take all of it now, and deal with the tax consequences, but would rather not.  She was led to believe that the beneficiary would be unfairly burdened.

then you do not have option to have paid out over beneficiary's lifetime.  I will say that there is a whole lot of misunderstanding  w/i IRS & Institutions as to options.  Thus, you are never going to be caught if Bank allows you to take over your life time, even if not eligible.  Tax Laws need to be simplified, otherwise UNENFORCABLE!!!  :~)