Today TaxMama® hears from “AReasonableMan” in the TaxQuips Forum, with a question about his wife’s inheritance. Essentially, it boils down to this. His mother-in-law died. Among the items his wife inherited is an IRA. When a person is over age 70 ½, they are required to draw a certain amount out of their IRAs and retirement plans each year – or face a substantial penalty. This is a called a Required Minimum Distribution or RMD. The Man says his mother-in-law did not draw her RMD for the year before she died. The IRA administrator sent it to his wife. The Man wants to know, who pays tax on this RMD – his wife or mother-in-law?
Dear Mr. Oh So Reasonable,
Mike Reed, EA in California responds, with a great deal of detail, including links to the sources of information. In essence, Mike explains that if the RMD had been drawn during Mom’s lifetime, the taxes would have been paid by her estate. Since the RMD was drawn after her death, the beneficiary (his wife) is responsible for the taxes.
Mr. Oh So Reasonable complains about all this and the unfairness of it all – and the fact that the IRS doesn’t provide any information about this. Whine, whine, whine…
In fact, the IRS does, and TaxMama® provides a variety of links that pop up easily in any quickie Google search. Clearly, he never even looked.
But the real issue I want to bring out is – if you are so concerned about keeping taxes lowest? Deal with this during a person’s lifetime. Mom was clearly in her 70’s. Help her deal with her tax issues (like taking an RMD in January), and help her put together a written will or trust. I know, it’s a tough conversation. But done with love, and honest concern, rather than pure greed and hostility, this is an important conversation to have. It will keep taxes low. It will keep probate costs low (or eliminate them in many states). It will reduce friction among the heirs and survivors.
And remember, you can find answers to all kinds of questions about post-death tax issues and other tax and business issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
Please post all Comments and Replies in the new TaxQuips Forum .