Paul Pent & Associates - Retirement Advice Blog

I just got off the phone with a client I've known for many years. His wife passed away last year and he wanted to discuss the beneficiaries on his accounts. He assured me that he didn't have enough money in his IRA to worry about estate taxes. I said, "Wait, go slow on that. You don't want to confuse estate taxes and taxes on IRA's. It's a different subject."

Currently, and with the new tax code, the estate tax exemption is 11.2 million for an individual and 22.4 million per couple(Not somehting most people have to worry about). However, if one passes on an IRA of any amount to a beneficiary other than their spouse, usually the whole amount will be taxed as regular income the year it is inherited. This is commonly overlooked and can lead to a huge tax bill for the beneficiary. Of course, there is a way to pass, even an IRA to a beneficiary without them having to pay taxes.

Happy New Year