non spouse bene IRA rcvd distribution .what are the options?
we have a client /non spouse bene that recieved a distribution from bene IRA she had inherited from her dad made payable to her and she deposited it . she said because it is inheritance money that should not be taxable. How true is that?
Also she is self employed and is looking for possible options of using this money to post contribution to her SEP IRA. that is possible . correct?
Permalink Submitted by Alan Spross on Tue, 2009-11-03 23:54
The inherited IRA distribution is almost certainly taxable, although a portion could be tax free if her Dad had a basis in his IRA from non deductible contributions. Most likely, she is confusing taxes with the early withdrawal penalty. There is NO early withdrawal penalty on an inherited IRA.
Yes, she could use the funds to finance a SEP distribution subject to the SEP contribution limits. She can also make a regular TIRA distribution to the SEP account, but may not be able to deduct it. She should make clear to the custodian whether it is a SEP contribution or a regular TIRA contribution so they record it correctly.