Is the value of an IRA (traditional retirement account) included when calculating estate tax?
I think this is a straight forward question but if anyone needs more information please ask me what additional information is needed and I will include it.
Is the value of an IRA included when calculating estate tax?
Mar 12, 2008
14 Replies
Yes.
But you need to read up on "income in respect of a decedent", which I wrote about on my site after this question was asked last time.
formatting link
The bottom line is that estate tax paid on the IRA can be recovered upon withdrawal. Otherwise, a $1M IRA would have $500K (or so) estate tax, then the $500K can get taxed at 35% ordinary income. On my site I include a link to a CPA Journal article with more details.
Joe
Then person inheriting a conventional IRA if there was estate tax will want to read up on "Income in Respect of a Decedent" I think.
formatting link
time.http://www.blog.joetaxpayer.com/archives/55>
Right, I am COMPLETELY confused now, I called up my bank today and the guy (Assistant Vice President Trust Officer) said no! Why the difference in answers? (I am sorry, I am having trouble accessing your site at the moment, if it says it there) Hmm, I am terribly confused, as for being able to recover tax upon withdrawal if estate tax was paid, I am rather lost about that too.. I have inherited an IRA (and *if* estate tax was paid on it), I am
*certainly* not getting any tax recovered upon withdrawal, which I pay the normal amount of taxes on.... I obviously asked the Executor of the estate whether estate tax was paid on it and she said yes, however, I am unclear of the exact value of the estate to make sure that the sums required would all add up (as I am unclear of other debts etc that had to have been paid) ,and I am unclear if I should believe this executor over a bank, however, I could be wrong. Why did the bank man tell me "no" then? He seemed quite sure of his answer that if the beneficiary of the IRA was the estate, then there would be estate tax, however, he said if the beneficiary of the IRA on the nomination form was a person, then there would be no estate tax on it. He clearly stated that it was not considered part of my estate unless I named the estate beneficiary. Could anyone clear this up please?
Bankers generally don't have a clue about taxes. Your banker is wrong. The value of an IRA is included in the taxable estate for estate tax purposes.
Ok, the problem is that, not only is the IRA subject to estate tax, but it is also subject to income tax. So in a larger estate once you pay estate tax and income tax on it, there may not be much left.
But you can ease the burden a little bit, because you can deduct the estate tax paid when you calculate the income tax.
The banker is simply wrong. He is probably confusing estate tax and income tax. If the estate is the beneficiary then there is income in respect of a decedent. But if someone else is the beneficiary, then the tax on the income, along with the income, goes to the beneficiary.
But it is always included in the decedent's estate for estate tax purposes.
Stu
True, but that wasn't part of the question.
My article first provided background info, and then linked to
formatting link
I just viewed and confirmed to be a valid link. You are very confused or your banker is, or both. Not part of your estate? I don't know what that means. Someone passed on, this dialog is about their estate. Bankers (well, everyone, really) shouldn't speak with authority on subjects with which they are so ignorant. I know enough to tell you that the topic of concern to you is "Income in respect of a decedent" and this portion of the tax code may mean you do not have to claim all the IRA withdrawals without benefit of some credit. The banker said "if the beneficiary of the IRA on the nomination form was a person, then there would be no estate tax on it." That's as wrong as wrong can be. If it were so, it would create quite the loophole for estate planning. You should get that in writing from him, he'll likely not remember even saying it.
See the link, and contact a professional. JOE
formatting link
I suspect the banker might have said that IRA with a POD/TOD beneficiary was not part of the estate if he meant (or maybe even said) for purposes of probate.
An IRA shouldn't have a POD or TOD beneficiary. It just has a beneficiary. As long as the beneficiary is not the estate, it's not part of the estate for probate purposes. But it is certainly part of the estate for estate tax purposes.
Stu
Phish, I warned you about talking to bankers . The gentlemen that have posted here are all giving the same advice, and I concur.
Please, please, please see a professional and stop talking to the bank. Even their senior trust officers are, seemingly, incompetent.
Good luck.
Bankers are always right. Ask Bear Stearns! ;-)
If you can't trust a Trust officer, then who can you trust? ;-)
Personally I wouldn't bank on it.
Stu
"kastnna" wrote
Client was refinancing a loan. Banker called and requested copy of 2006 return (07 wasn't done back then). After getting the AOK from the client, we faxed a copy to the bank. Banker called and accused us of not sending all the pages. Seems they were looking for the Schedule B because of the $8 of interest income reported on Line 8a. Explained to banker that a Schedule B was not necessary for $8 of interest income. Banker said they needed a letter to that effect before they could close the loan. We wrote the letter, and sent the bank a bill for $120 for education and training.
It's no wonder there's a mortgage crisis.
Join the Discussion
Have something to add? Share your thoughts — no account required.
Didn't find your answer?
Ask the community — no account required