Here's the situation, the decedent had an IRA without beneficiaries listed on the account. The IRA was cashed in and moved to his estate account. Who pays the taxes (which I think will be a hefty 40% plus), the estate or the beneficiaries as listed in the will? These types of things may vary state to state, I don't know.

I suspect that the answer depends on the relationship of the beneficiaries and that this is a question that needs to be handled by a real CPA that you pay to do this right. If done right it might have been possible to roll it into the recipient’s own IRA without any immediate taxes.

If the estate was the beneficiary of the ira and the estate got the proceeds then it’s the estate that will pay the taxes. A 1099R will be generated to show that distribution for the tax ID of the estate.

There are exceptions, but one should, as a general rule, never leave your estate as the beneficiary of an ira or 401k.

The source of the funds was a qualified retirement account (taxes deferred until time of withdrawal). The account was liquidated with the funds passing to the person acting on behalf of the deceased in settling the affairs of the estate. Such a transfer triggers the taxable event and the estate will be expected to pay the taxes as part of settling the estate on behalf of the deceased.

Filing the final tax returns of the deceased, and remitting any taxes due, is one of the responsibilities the executor of the estate is required to perform.

I would be very surprised if the financial institution holding the account did not provide full disclosure of these requirements when closing the account and disbursing the funds. I have no doubt that the institution will report the withdrawal to IRS, so Uncle's massive computer system is already anticipating payment of the taxes (with recorded information on the individual receiving the funds from the account).

I'm not a CPA. I'm not a tax attorney. I have served as executor for the estates of 4 deceased relatives, only one of whom provided a last will and testament for me to follow. My advice to the person now serving in that capacity is to retain a qualified attorney and follow legal advice so the estate is settled quietly to the satisfaction of the courts and IRS.

You don't tug on Superman's cape, you don't spit into the wind, and you don't mess with the IRS.

The decedent was never married nor did he have any children. He left everything to his two brothers in his will. Since the IRA didn't have beneficiaries listed, it ends up in his estate account in probate. It could't pass directly to his brothers. There has been an initial consultation with a CPA and he said the money will be split between the two brothers and they will pay the taxes, I guess on their 2022 tax returns. It just sounds ass backwards to me so I thought I would ask.

quote:

Originally posted by P229 357SIG Man:
The decedent was never married nor did he have any children. He left everything to his two brothers in his will. Since the IRA didn't have beneficiaries listed, it ends up in his estate account in probate. It could't pass directly to his brothers. There has been an initial consultation with a CPA and he said the money will be split between the two brothers and they will pay the taxes, I guess on their 2022 tax returns. It just sounds ass backwards to me so I thought I would ask.

Yeah. Seems that way to me too but I’m not a CPA. I’d like to hear the explanation of how that winds up on somebody else’s tax return other than the person/entity that received the check and the 1099R. Maybe there is a CPA on here who could explain…

The taxes paid be the estate are generally triggered by income realized after death. This is deferred income from before that, passes THROUGH the estate similar to how income does in partnership or LLC to the beneficiaries who are the recipients. They’ll get a Form 1041 from estate showing amounts. Well assuming the estate CPA does heir job.

This is a perfect example of a botched opportunity to defer that tax until the funds were withdrawn by the brothers. If you’ve got an IRA and aren’t sure each and every one of those accounts has a named beneficiary other than estate please go verify that now. Each account has to be done separately, so even if you have multiple accounts with one broker, designations o one don’t apply to others.

People just get lazy on this thinking that since they’d be designating the same beneficiaries as their estate there’s no need. This shows why that is flawed thinking. In most cases this can be done online in under 3 minutes, and you can name primary and secondary beneficiaries, etc.

quote:

Originally posted by 220-9er:
If done right it might have been possible to roll it into the recipient’s own IRA without any immediate taxes.

Not in this case, even if the brothers had been named as the IRA beneficiaries. Only a spouse can transfer the deceased owner's IRA into an existing IRA to be treated as their own.

Thanks to the SECURE Act, non-spousal beneficiaries have 10 years to completely withdraw the funds of an inherited IRA. There are some exceptions.