Permalink Submitted by Al Fry on Tue, 2008-09-16 18:32
Not sure what you are referring to-most IRAs (other than Roths) have little or no tax basis, percentage-wise. If an IRA was invested in an annuity, the death benefit could very well (especially in these times) exceed the account value, which means the beneficiary would receive a step-up in value, but not in cost basis.
Permalink Submitted by Alan Spross on Tue, 2008-09-16 20:43
Not sure what you mean either. An IRA has no step up at the owner’s death, but has a carryover tax basis. This means that if the owner had made non deductible contributions and filed Form 8606 to report them, the beneficiary, spouse or non spouse, would acquire the unrecovered or remaining basis and add it to their own basis by filing an 8606 for their own IRA.
If they chose to continue the IRA in inherited form rather than rolling it over to their own IRA, they would still acquire the remaining basis, but it would not be combined with their own IRA.
On other words, whatever basis is shown on Form 8606 carries over and does not change as a result of the owner’s death. The beneficiary gets to apply it and it makes a portion of their distributions tax free.
Permalink Submitted by Al Fry on Tue, 2008-09-16 18:32
Not sure what you are referring to-most IRAs (other than Roths) have little or no tax basis, percentage-wise. If an IRA was invested in an annuity, the death benefit could very well (especially in these times) exceed the account value, which means the beneficiary would receive a step-up in value, but not in cost basis.
Permalink Submitted by Alan Spross on Tue, 2008-09-16 20:43
Not sure what you mean either. An IRA has no step up at the owner’s death, but has a carryover tax basis. This means that if the owner had made non deductible contributions and filed Form 8606 to report them, the beneficiary, spouse or non spouse, would acquire the unrecovered or remaining basis and add it to their own basis by filing an 8606 for their own IRA.
If they chose to continue the IRA in inherited form rather than rolling it over to their own IRA, they would still acquire the remaining basis, but it would not be combined with their own IRA.
On other words, whatever basis is shown on Form 8606 carries over and does not change as a result of the owner’s death. The beneficiary gets to apply it and it makes a portion of their distributions tax free.