Reply to Family member death - Tax Filing and Retirement Accounts

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[quote=Anonymous][b]Do NOT blend your inherited IRAs into your existing IRAs.[/b] The inherited IRAs will have to be liquidated within 10 years. Depending on your age, you may not need to withdraw from your IRAs for many years. You don't want to mingle the funds you HAVE to liquidate within 10 years with funds that don't have to be distributed for quite some time. The same goes for any Roth IRAs.

You will have to file a final 1040 for the year in which your relative passed. If they passed in 2023 and had not yet filed their 2022 tax return, you will also have to file it (meaning you'll be responsible for a 2022 and 2023 Form 1040 tax return). With any luck, there will be a small tax liability because getting a refund in respect of a decedent from the IRS takes a long time, and if you don't have Letter Testamentary issued by a Court (which happens in probate) then it could take even longer.

You may not have to file a Form 1041 estate tax return (not the death tax return, Form 706) *if* the decedent's estate earns any income between date of death and the date the assets are distributed to you. From what you've indicated, there may be some minor interest income during that period. It's quite possible you can get away with not having to file Form 1041.

You need to ascertain the beneficiaries for all assets. For IRAs and 401(k)s, you can basically transfer the balance to what is called an "Inherited IRA" or 401(k). [b]Again, don't mingle inherited IRA funds with your own IRA funds because they will often have different distribution rules associated with them. [/b]

If the decedent was older than 72, he/she was taking Required Minimum Distributions from their (non-Roth) retirement accounts. If they passed in 2023, you should transfer the IRAs to yourself and then resume taking required distributions based on the decedent's birth date and age (as opposed to your age if you're not yet 72). If you are a sibling and less than 10 years younger then the decedent, you can elect to spread out the IRA distributions over your lifetime, rather than according to the decedent's age.

Frankly, I think you need to buy an hour or two of someone's time. While you may be able to do all of this work yourself, you do need someone with knowledge to help you formulate your game plan. If it weren't tax season I'd offer to help.

Good luck![/quote]

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