I'm a 50-year-old male who inherited $450,000 in a mix of an inherited brokerage account (250k, Roth IRA (50k) and traditional IRA(150k).
I understand that I have to take mandatory deductions but I don't have a full understanding of what would be the best way to limit my tax liabilities. My understanding is that I need to take standard distribution and cash out the account at the end of 10 years. If I don't take the standard deductions I have to cash out the accounts in 5 years? I'm looking for someone to offer a little clarity on how to navigate.
I don't need this money for daily survival as I have two houses almost paid off and a net worth at around 3M+/-
Thanks!
Edit..small edit for clarification.
Inherited IRA/Brokerage strategy? Do I avoid tax liability with minimum distributions or not?
byu/TheLairLummox ininvesting
Posted by TheLairLummox
5 Comments
[https://www.google.com/search?q=rmd+calculator+for+inherited+ira](https://www.google.com/search?q=rmd+calculator+for+inherited+ira)
[https://www.schwab.com/ira/ira-calculators/inherited-ira-distribution-calculator](https://www.schwab.com/ira/ira-calculators/inherited-ira-distribution-calculator)
Use a calculator like that.
For the Roth, leave it all in there until year ten (look up specifically how those dates are determined, or do it after nine years to be safe).
Nothing you need to do with the brokerage.
Roth distributions are tax exempt so you can do whatever.
Specifics of the traditional IRA depend on who you inherited it from, if they were taking RMDs, etc.
But within the 10 year window it makes sense to spread things out roughly equally if possible. If there’s a RMD and you just take the minimum every year you can end up with a huge chunk to take in the last year, which can get into higher incremental tax brackets.
Are you confusing tax deduction with minimum *distribution*?
Separate the three. They each fall under different provisions.
Brokerage: you get a Step Up in basis. That means your carrying cost gets updated to the market price as of the date of death. Assuming you weren’t already a partial owner. This needs to be done by the brokerage, and you’ll see it on your account holding details. This also means, if you sell something, you are treated as holding long term, for purposes of capital gains.
Roth IRA has no tax consequence.
The Trad IRA has requirements which differ depending on who you inherited from, and if they were subject to RMDs at the time of death.
Though you have 10 yrs to take the IRA distribution, important to consider if the amount withdrawn will move dollars into the next tax bracket.
Example using fake numbers…
Regular income of $50k. Say the tax rate is 10% <= $65k, 15% $66k-$100k. If you withdrawal $15k you will pay the lowest tax. But if you withdrawal $50k will push $34k into the 15% bracket and cost more in tax.
The tax math says to take out as much as you can without bumping tax brackets. The faster you do it the easier it will be IMHO. Why you ask, because the money will continue to grow. Leaving it in the account will force a higher tax burden. Taking the money and growing it even in a taxable account held > 1year might have little, by comparison, to no tax when you sell down the road. Don’t forget to put the money right back to work, never try to time the market.
Hope that makes sense. Also just my opinion, everyone is different.