inheritated traditional ira by a minor
My two grandchildren, ages 15 & 12, were named beneficiary to their cousins traditional IRA account at PUTMAN. Each child was awarded 12 1/2 % approx. value $ 28,000.00. The account owner passed away in Feb. 2016 at the age of 73. Both children are claimed on their parents tax return yearly. If it decided to receive a total distribution of each of their shares how would this be taxed? Would they be subject to form 8615 or would they simply file a 1040 or 1040a as someone who could be claimed on another persons tax return ?
Permalink Submitted by Alan - IRA critic on Mon, 2017-03-06 16:54
Taking a total distribution is unwise, and their RMDs would be very small. If the distribution is kept under 2,100 each year the “kiddie tax” and Form 8615 will be avoided. Total tax is almost always lower if the child files their own return instead of having the parent report it. An UTMA may need to be established to receive the RMDs until the child reaches the of majority. Taking a lump sum distribution pretty much cancels out most of the benefits for leaving an IRA to a minor – loss of the stretch, very low RMDs, and very low taxes if any.