What are the tax implications for beneficiaries of traditional IRA accounts?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 15, 2021

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Let’s say for example, you and your mother are benefiaries of your father’s traditional IRAs and each was funded with pre-tax dollars. Your mother, as a surviving spouse, can roll over the proceeds of the IRA distribution she inherited into her own IRA or a Section 403 annuity. When she takes money out of the IRA, she will have to pay income taxes on it.

You, on the other hand, cannot roll over the IRA you inherited. Instead you will have to include the total amount of all tax-deferred income you receive from your father’s IRA as taxable income in the year you receive it.

If your father’s estate was subject to federal estate tax, you may take as a deduction from your income taxes any federal estate taxes that were paid on the portion of an IRA you inherited. To the extent your father’s IRAs included nondeductible contributions, you would not have to pay income tax on those monies, as income tax would have been previously paid by your father on his tax return the year he earned it.

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