USA Inheritance, dividing money that will be taxed and not taxed?

[Mike N]

Hi all,

My mother passed away and left money in both an IRA and a savings account to myself and my sister. Since I was on her savings account I don't believe I pay tax on that money but my sister who was on the IRA will have to pay tax. How would I figure out how much I should give my sister as it doesn't seem fair that she should have to pay tax on what she received and I don't. Specific situation is we will total all money together but she will end up paying taxes on 15K more than me as she has 15K in an IRA that she will eventually have to pay taxes on.

Any help at all would be very appreciated!!

Thanks,

Mike

 

[kirby]

You are right that it would not be fair to have your sister pay on the taxable item while you pay no tax. What you might do is tell your sister to let you know how much tax she incurred and then reimburse her for half. If she knows her tax rate you could settle that now. Better: if you guys figure out the total of the checking and the IRA and split that in half, less tax.

 

[Mike N]

You are right that it would not be fair to have your sister pay on the taxable item while you pay no tax. What you might do is tell your sister to let you know how much tax she incurred and then reimburse her for half. If she knows her tax rate you could settle that now. Better: if you guys figure out the total of the checking and the IRA and split that in half, less tax.

Thanks for your help! Not sure when she will take the money out of the IRA so I was thinking of just using 15% tax rate and paying her half to cover when she'll have to pay the taxes. Never thought it would be this hard! lol Thx

 

[maarkr]

just to be clear, your mom left the IRA to your sister and the savings to you? then why is your sister giving you money? if the estate splits the assets between you and your sister, then the executor should divide the assets equally between you so you both end up with half the savings and half the IRA.

 

[Mike N]

just to be clear, your mom left the IRA to your sister and the savings to you? then why is your sister giving you money? if the estate splits the assets between you and your sister, then the executor should divide the assets equally between you so you both end up with half the savings and half the IRA.

Yes, we will divide all money up so that each of us get's equal amount. The problem is when we do that she will have to pay taxes on part of her money as it is coming from the IRA and will not since mine is coming from savings. She might not take the money out for a long time but we want to settle it all now so I wasn't sure how I should pay her for taxes she will have to eventually pay.

 

[bklynboy]

I would talk to a financial planner. There are rules that permit the IRA to continue to be tax free to the beneficiary until the time that they are retirement eligible and pay taxes as its drawn down over time. Not an expert in this regard but I have known a few people that have taken advantage of the rule. Just an option if the sister does not need the funds immediately and prefers to continue to defer the payment.

 

[Mike N]

I would talk to a financial planner. There are rules that permit the IRA to continue to be tax free to the beneficiary until the time that they are retirement eligible and pay taxes as its drawn down over time. Not an expert in this regard but I have known a few people that have taken advantage of the rule. Just an option if the sister does not need the funds immediately and prefers to continue to defer the payment.

Thanks for the reply. I believe she can keep it in the IRA until normal retirement age which then who knows what her tax bracket or rate would be. I guess that's the issue I'm having is I have no idea what percent tax I should use to pay her now. I believe her and her husband fall in the 28% tax bracket now. Originally I thought about just using 28% but then wondered if I should use a tax rate vs the tax bracket percentage. Also, when they go take the money out they may even no longer be in that tax bracket.

THANKS