IRA withholding for reducing estimated taxes
7th November: Have you inherited IRA and want to know whether to have taxes withheld or not?
Let’s see what are the available options for you in this regard and what should you choose to avoid getting the proceeds from an inherited IRA taxable.
What is an IRA—IRA is an individual retirement account and is regarded to be a form of tax shelter. Reason being until the money gets withdrawn from this account, assets in this account cannot be taxed. So, the good thing is until withdrawals Britain, the IRA keeps growing without the obligation of being subject to any taxes. The amount in any IRA account is termed as ‘contribution’.
A regular IRA—Remember, any proceeds from a regular IRA are going to be taxable. And in this case, the IRA trustee will be required to withhold not less than 10 percent of the government income tax. Of course, the case is not so if you, the beneficiary, choose not to have the taxes withheld.
Moreover, if the IRA has inheritance from a spouse, then there are no issues for taxes on the contribution. Its only when the inheritance from a non-spouse.
What should be done with the IRA funds—Beneficiaries of an inherited IRA need to take proper steps to avoid losing huge tax benefits. Consider these—
Renaming or re-titling IRA–To save yourself from complicated tax problems, you need to make sure that the deceased IRA owner’s name remains on the IRA account. This simply means that you need to maintain the IRA account as a beneficiary account.
For this, you must ask the institution maintaining the account to include the deceased person’s name by re-naming the account. The name of the inherited IRA must be anything like this—“Mark Lee (deceased) IRA for benefit of Tina Lee”.
Doing so will save you from tax obligations since the inherited money under IRA will be regarded as a beneficiary IRA.
For first minimum distribution required for a non-spouse, last date is regarded to be 31st December of the year after the death of the account owner. However, if, in any case, the deadline gets missed, the requirement is to pay the account in five years period.