Capital gains in an inherited IRA
RMD’s taken from an inherited IRA are treated as regular income, correct?
If that inherited IRA has a capital gain, are those gains also treated as regular income? Seems to be unfair if they are as capital gains have a generally more favorable tax structure.
Heidiq
Permalink Submitted by Alan - IRA critic on Thu, 2024-06-20 16:18
All distributions are taxed as ordinary income except to the extent the IRA contains basis from non deductible contributions reported on Form 8606. The only situation where cap gains can be applied is for employer shares in a 401k or ESOP plan eligible for NUA (net unrealized appreciation) after the shares are distributed to a taxable brokerage account and then sold. This exception does not apply to IRA accounts.
Permalink Submitted by PaulC on Thu, 2024-06-27 16:17
The inability to use preferential long-term capital gains tax treatment is one of the downsides of using an IRA. Similarly, net capital losses can’t be claimed against other income. Another is the lack of step-up basis for IRA assets upon the death of the original IRA owner. I wouldn’t describe those characteristics as unfair. They are built in to the tax structure of IRAs and are some of the considerations of using those retirement savings vehicles.