Traditional IRA liquidated by estate
Can an estate liquidate the deceased’s traditional IRA and then distribute the proceeds, tax free, to the beneficiaries.
Can an estate liquidate the deceased’s traditional IRA and then distribute the proceeds, tax free, to the beneficiaries.
Permalink Submitted by mk foss on Mon, 2011-02-28 18:26
The IRA proceeds are not going to be tax-free. If the estate liquidates the IRA and distributes the proceeds to the beneficiaries in the same tax year – the beneficiaries will pay the tax. The estate reported the IRA distribution on the Form 1041 that it files and claims a deduction for distributions to beneficiaries.
If the estate doesn’t distribute the proceeds until a later tax year, the estate will owe the tax on the IRA liquidation. That tax is likely to be at a much higher rate than if it funds were distributed. An estate reaches the highest bracket (35%) at $11,200 of income in 2010. Individuals are at that rate only if taxable income exceeds $373,650.