Podcast Episode 247: Inheritances Come With Different Tax Amounts

Today’s Wisdom:

Receiving an inheritance can be a life-changing opportunity for many people, and you want to get as much out of that gift as possible. Join us today as we answer a question about different types of inheritance assets and what types of taxes are associated with each.

Want to save time? Click the timestamps below to jump ahead to specific spots in the episode.


What You’ll Learn:

If you’ve ever been given the gift of an inheritance, you understand how much it means financially and emotionally. It’s something that you don’t want to waste because someone close to you cared enough about you to pass along this gift.

We work with people all the time who were able to benefit from someone’s else legacy planning and it’s important to make sure you get the most out of that gift. That inheritance could come in many different forms, from cash to property to retirement accounts, and each will carry different tax requirements. Before you do anything with your inheritance, please make sure you understand what you have and what it might cost you.

That brings us to a question we received on the Money Wisdom podcast recently. This person who wrote in asked about three specific account types that they received: IRA, non-qualified annuity, and a brokerage account. They wanted to know about the taxes on each so we used the show to break it all down.

There have been a lot of taxes changes lately, especially when you talk about an inherited IRA. You used to be able to spread out the inheritance over your lifetime but now you have 10 years from the date of death to spend all that money. And all that money will be taxed. You can do it all at once or bit-by-bit but keep in mind that taxes will have to be paid on the money as you take it out so make sure you work it into your plan.

The non-qualified annuity was the next account she received. There’s a chance you could option to continue the annuity so you might want to explore that. It might make sense to continue but when the money comes out, you’ll have to pay taxes on that as well but not as much.

The final account in the inheritance was the brokerage account. There’s a little better news here because there’s a really good chance there won’t be any taxes. When you inherit stocks, there’s a step-up in basis that allows you to reset the cost basis to whatever price you inherit it at. So regardless of how much was gained over the lifetime of that brokerage account, you’ll only be responsible for the gains that occurred since death.

If you’re in a situation where you need money to pay for final expenses or something similar, make sure you know which money to pull from first because it could drastically change your taxes in the upcoming year.

The best thing you can do is meet with an advisor and come up with a plan for receiving that inheritance. We’ve seen too many mistakes made and we don’t want it to happen to you.

[0:19] – Question on inheritances

[0:44] – IRA

[1:30] – Non-qualified annuity

[1:51] – Brokerage account

[2:58] – Inheritance mistakes

[4:54] – Question on Social Security

Thanks for listening to this episode. We’ll be back again next week for another show.


Final Thoughts:

“You don’t have to pay taxes on everything all at once, it’s just that that’s what most beneficiaries do and it’s usually because they don’t know they have other options.”

– Eric Hogarth

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