beneficiary taxes on inherited money

[sbube]

My late mother had an IRA and an annuity as part of her estate. Apparently these are distributed to the beneficiaries, who pay cap gains taxes themselves on it. The estate lawyer recommended not having any taxes be witheld from this money, but to just pay the taxes next April.

But if these taxes cause me to write a big enough check to the IRS (instead of getting a refund as I usually do) won't the IRS then require me to do quarterly payments of taxes in the following tax year?

 

[carniman]

First - Find yourself an experienced "tax practioner" that is familiar with and up to date on preparing estate returns (706, 1041) and
the resulting effect on beneficiaries. Enrolled Agents or other practioners which maintain current education levels in taxation are your best source.

To give you a general overview of your circumstance.....

The amounts distributed from IRA's and annuities to the beneficiaries would be taxed at their "ordinary" income tax rates (not capital gain rates). Keep in mind, only those amounts which would have been income for your mother is taxable to you.

To explain: Deductible contributions and the earnings are fully
taxable. Non-deductible contributions would not be taxable, but
the earnings will be. This is assuming in both instances we are dealing with a traditional IRA.

Annutities may also have a non-taxable basis.

If the distribution occurs in 2005, you will report it on your 2005
tax return. As long as your 2005 withholding is at least as much as
your 2004 tax liability, you generally will avoid tax penalties for underwithholding. In this instance you could wait and pay the tax due on April 15, 2005. Your particular circumstances should be discussed with a professional in this area. Further, this would not
generate required estimated payments for 2006 - unless of course
the estate will continue making distributions in future years.

Did you ask the estate attorney if the distribuition could be spread out over time? This is generally an option available if done correctly and the IRA's have yet to be distributed.

Again this is a short answer. You should really seek out advice.

 

[sbube]

Thanks very much for the information. Yes, I think I will have to get tax help next year, for the first time!

The estate lawyer did say that the distribution could be annuitized, but I and the other beneficiaries would prefer a lump sum, and we've been informed about the dollar amounts of each fund that will be subject to tax.

Thanks again!

 

[carniman]

correction

Correcting the date in the reply -

The date for payment of tax should have read "April 15, 2006".
Sorry for any confusion.

 

[denno]

beneficiary taxes cont'd

My mother died, leaving an annuity to be split five ways amongs the siblings. Can I request that my share be disributed in quarterly amounts as my mother did? Or do I have to receive it in a lump sum?