Mar 16

Somebody told me that inheritances are not taxable. I inherited a Traditional IRA, but somebody else said to me that it is taxable. Anybody has the answer? And if it is true,then why is that?

5 comments so far...

  • Arthur R Said on March 16th, 2010 at 4:18 pm:

    Inheritances, in GENERAL are not subject to income tax. However, non-Roth IRAs would have been taxable to the decedant when withdrawn, so are taxable to you when withdrawn.

  • Wayne Z Said on March 16th, 2010 at 4:21 pm:

    Deductible Tradtional IRAs are taxable because the money has not been taxed before where as other funds (savings accounts, stock, etc.) have been taxed.

    Generally, you will have 3 options:

    1) Withdraw it all at once;
    2) Withdraw it over 5 years; Or,
    3) Withdraw it over your expected lifetime.

    Whatever way you choose, the amounts withdrawn will be taxable.

  • Matt G Said on March 16th, 2010 at 4:38 pm:

    In general, the information you have is correct. ( If the amount is large enough, the inheritance may be subject to federal inheritance tax, is one exception to the “general rule.”)

    The money that was deposited in the IRA was never taxed for income purposes. (Traditional IRA deposits are, by defenition, “pre tax.”) Thus, you are paying the income tax on the money that the previous owner of the IRA never paid.

  • Confused Said on March 16th, 2010 at 5:34 pm:

    Because there was never any income tax paid on the money that was contributed into the IRA…..

  • Judy Said on March 16th, 2010 at 6:22 pm:

    The IRA is taxable because it was funded with pretax money so SOMEBODY has to pay the tax, and that somebody is you ir you are the one taking out the money.

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