Apparently there was no taxes deducted yet so does that mean there going to take roughly 22 percent for federal taxes(over 40k)?!?.. 5 percent state taxes? Pennsylvania has 4.5 percent inheritance tax…and also if I take the lump some do they include that, meaning just add the 200k to my income then I get taxed again?!? How much of 200 k will actually away with?!!
Inheriting 200k from a qualified variable annuity, ira how much will I walk away with
byu/folder1986 intax
Posted by folder1986
8 Comments
Check with your cpa.
PA does not apply income tax on inherited IRA distributions. I’m not sure about the inheritance tax though.
For federal, it depends on your total income.
Why would you take lump sum to pay extra taxes? You generally have 10 years to remove the money and would make sense to take small amounts each year rather than push yourself into higher bracket
Hire a CPA as we know nothing about your tax situation
Don’t take a lump sum, you’ll get killed in taxes. Roll it to an inherited IRA and take the distributions over 5 or 10 years
Consider all distribution options carefully. Learn more about the annuity, its basis, and what it earns annually. You don’t necessarily need to hire a CPA if you are willing to do your research. If you have a tax professional, get their advice.
You likely should not take it out all at once. How long you have and when and whether and how much required minimum distribution you must take can vary depending on your relationship, your age, your difference in age, your health, whether they were doing RMDs or had done one for this year, etc. You definitely need advice specific to your actual situation.
Non-spouses generally face a 10-year payout rule under the SECURE Act, meaning the funds must be fully distributed within 10 years of the original owner’s death, and taxes are owed on the earnings as they are withdrawn. Then you will want to see whether you want to take the yearly distribution at the beginning of the year so you can put it in a savings account and earn interest on it if the annuity contract doesn’t allow tax deferred growth. If it does then take the distribution at the end of the year and leave the growth amount in the annuity to withdrawal later.
Well, it’s likely a pre-tax/Traditional IRA account that is invested in a variable annuity contract (yuck). Was the original owner already taking RMD’s? No taxes are taken or withheld until you take a distribution, the IRA account was likely funded with pre-tax dollars and grew tax-free, so that’s why there are taxes due when you take funds out of the IRA. Please seek professional assistance to make the best decision, likely a tax advisor and maybe speak with an advisor at Fidelity, Vanguard, etc. Initial thoughts:
* Open an Inherited IRA to receive the funds. You may have to do this at the firm where the account is now held. Then transfer that account to a firm like Fidelity, Vanguard, Schwab etc., if you are comfortable managing yourself.
* It MIGHT be best to figure out how to dump that variable annuity and park it in a cash investment (money market fund) INSIDE the Inherited IRA. Variable annuities are expensive (fees) and you likely will be better off just using an index fund…again, INSIDE the Inherited IRA. Until you figure the investment side out, just leave in that cash investment.
* Determine if decedent was taking RMD’s, and if so, you will have to continue doing that every year.
* Likely does NOT make sense to take a full distribution of the account as you will be taxed on the full amount and as ordinary income more than likely.
* You will have to deplete the full balance of the account in 10 years.
* I could be wrong, but I believe the estate (executor/admin) pays the PA inheritance tax out of the funds and the remainder goes to beneficiary.
Seek professional advice…tax, investments, etc. so they can advise to your specific situation.