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Inheritance Question


madcrapper
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My scenerio is this:

My income for 2005 will be 60,000. My brother and myself will be splitting a retirment fund which was never drawn on for a sum of $210,000, from our father. That will be 105,000 each with a mandatory %20 fed withholding before payout.

How will this be taxed. Do i add the 110,000 to my gross income? Or will be seperate?

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DHK is right. You really do need to talk to a tax expert.

And I don’t mean somebody who does taxes. One of the first things my tax law professor said was that you can get a monkey to prepare a tax form.

I have known a lot of people who have gone to an expensive CPA to have their taxes done and all they did was input all of their data into their computer and crank out the results. That is no different than a Joe Schmoe tax preparer that has the exact same software program but charges a heck of a lot less.

You need to go to a real tax planner.

They will talk to you about what financial decisions you need to make NOW. Note the capitalized “now”. I have also known lots of people who have gone to a tax preparer or accountant “after” the tax year has ended expecting to get some sound advice about what to do to save on taxes even though the tax year has ALREADY ended.

When you seek advice, you have to do it before the tax year ends (that is, like right now) so that you can make the best informed decisions about your finances and taxes.

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I strongly second and third the posts above. For a relatively small fee, a tax advisor may likely save you thousands of dollars if you preemptively seek good advice and take advantage of all sheltering opportunities. Some things are best left with the professionals.

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  • 2 weeks later...

I second, third, whateverth the advice above.

The inherited retirement accounts area is a very specialized tax field that even few legitimate professionals are well versed in. Likely options you have include 1) take it all now and pay the tax 2) take equal amounts each year over the next 5 years (and pay tax each year at somewhat lower rate) 3) possiblely take a MINIMUM (you could get more out if needed in a particular year) of aproximately 2% each year FOR THE REST OF Y O U R LIFE which is a huge tax shelter for you.

Most of your "I do it all" attoney's, CPS's, finacial planners do NOT understand these things. Worse if you call the bank, mutual fund company etc. where the funds are the service reps and their supervisors DO NOT know your best options or worse yet tell you "you can't do that" when you can.

Also, you and your brother can have seperate accounts over whatever period you may decide to leave this in the tax sheltered account and make your own withdrawal and investment decisions independantly.

Make sure the person whose advice you follow absolutely knows what they are talking about - be sure you ask and get "authority" IRS code sections, Rev Ruling, court cases etc. for what they are telling you. If they tell you that's not important - find someone who will serve you.

These choices are a big deal - I just computed a 7% return on the money over 30 years left-in verses taken-out and reinvested - if you can keep it IN over 30 years the account is $340,000 larger in year 30.

Do get some really good professional advice regardless of what your goals with this are. You'll be glad you did.

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  • 4 months later...

If you don't have to have the money now, strech it out over a few years to keep it from bumping you into higher tax brackets. Doing a stretch IRA and taking distributions over your life time would be ideal from a tax planning standpoint, all else equal.

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