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Inherited 403b - In Low Tax Bracket

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My mother in law passed last September and left a 403b with my husband as beneficiary. She was 84 and my husband is 56.

 

The fund is oppenheimer and has lost 10,000 since her death.

 

We are in a very low tax bracket, the lowest and would like help understanding the tax implications if we just cash out now and what should have been done at the time of her death.

 

Am I correct in understanding that if she died in 2007 it became ours in 2007 and do we have to report this on 2007 tax return?

 

I read the document listed but am confused. Yes it will be taxed if we remove the funds, but does age matter on tax rate or what is taxed ( not income- do not presume we'll have less taxable income in future)

 

I'd like to invest in my husband and allow him to be able to take a teaching gig that will pay almost nothing but will position him for future jobs and income. Cashing out the 403b would help make this a possibility.

 

Your input? Thanks in advance.

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My mother in law passed last September and left a 403b with my husband as beneficiary. She was 84 and my husband is 56.

 

The fund is oppenheimer and has lost 10,000 since her death.

 

We are in a very low tax bracket, the lowest and would like help understanding the tax implications if we just cash out now and what should have been done at the time of her death.

 

Am I correct in understanding that if she died in 2007 it became ours in 2007 and do we have to report this on 2007 tax return?

 

I read the document listed but am confused. Yes it will be taxed if we remove the funds, but does age matter on tax rate or what is taxed ( not income- do not presume we'll have less taxable income in future)

 

I'd like to invest in my husband and allow him to be able to take a teaching gig that will pay almost nothing but will position him for future jobs and income. Cashing out the 403b would help make this a possibility.

 

Your input? Thanks in advance.

 

Hello,

Personally, I would seek some help from a fee based financial adviser. There are numerous variables to consider, all important. You can check http://www.napfa.org/ for an adviser in your area, I believe.

Best of luck,

d

 

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"I read the document listed but am confused. Yes it will be taxed if we remove the funds, but does age matter on tax rate or what is taxed ( not income- do not presume we'll have less taxable income in future)"

 

I appreciate your advice to check with a fee-based adviser, but living in a small town in a state where corruption rules, we have yet to find trust worthy, competent counsel. Those that fit that criteria serve the rich and powerful and have no time for small questions. Hence we are asking in a more global community where hopefully knowledge without ulterior motive resides.

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My mother in law passed last September and left a 403b with my husband as beneficiary. She was 84 and my husband is 56.

 

The fund is oppenheimer and has lost 10,000 since her death.

 

We are in a very low tax bracket, the lowest and would like help understanding the tax implications if we just cash out now and what should have been done at the time of her death.

 

Am I correct in understanding that if she died in 2007 it became ours in 2007 and do we have to report this on 2007 tax return?

 

I read the document listed but am confused. Yes it will be taxed if we remove the funds, but does age matter on tax rate or what is taxed ( not income- do not presume we'll have less taxable income in future)

 

I'd like to invest in my husband and allow him to be able to take a teaching gig that will pay almost nothing but will position him for future jobs and income. Cashing out the 403b would help make this a possibility.

 

Your input? Thanks in advance.

 

Your situation is complicated and you should consult a tax advisor or CPA for answers to the following Q:

 

Q1 Did your mother in law receive her minimumum required distributions (MRD) for 2007 from her 403b plan before her death? Under IRS rules the MRD must be paid out each year and if the owner dies before receiving the payment for the year of death the MRD must be paid to the beneficiary of the account. If the MRD was not paid out by 12/31/07 a 50% tax may be imposed on the MRD amount that was not distributed. If the MRD as not paid you need to consult with a tax advisor. If an MRD was paid to your mother in law in 2007 Oppy would have sent an IRS form 1099 to her showing the amount of the payment. By the way your mother's representative ( your H?) is responsible for filing his mother's income tax return for 2007 depending on the amount of income she received before her death and her estatate will be required to file an income tax return (1041) for income paid to her after her death. Which is another reason for consulting a tax advisor.

 

Q2 If you H is the sole beneficary he should be able to transfer the amount of the 403b annuity to an inherited IRA at any financial institution that sponsors IRAs. Under IRS rules he must take an MRD beginning 2008 based upon his age 56 which would allow payments to be made over about 29 years. IRS publication 590, available free at irs.gov contains instructions on creating an inherited IRA. This is another reason to consult a tax advisor. If he doesnt want to receive MRDs your H can elect to receive a distribution of the entire account balance in a lump sum in 2008 and it will be taxed as as income at tax rates beginning at 10% plus any state income taxes. If you are in the 10% bracket for taxable income up to about 16k then the taxable value of the 403b account will be added to other your income that would be taxed to you in 2008 which could result in taxation rates of 15%, 25% or higher rates depending on the amount of the distribution. This is another reason to roll over the funds to an inherited IRA so as to avoid paying a higher rate of income tax than would be imposed if MRDs were taken. If the funds are transferred to the inherited IRA by 12/31/ 2008 your H can take them over the IRS life expectancy tables or more rapidly if he wants to. If the rollover to the IRA does not occur by 12/31/08 the the entire amount in oppy account would have to be distributed to him no later than 12/31/2012.

 

3. Since there may be other issues that you are not aware of your H needs to consult with a tax advisor before taking any action. There may also be estate tax issues for which he should consult an attorney.

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My mother in law passed last September and left a 403b with my husband as beneficiary. She was 84 and my husband is 56.

 

The fund is oppenheimer and has lost 10,000 since her death.

 

We are in a very low tax bracket, the lowest and would like help understanding the tax implications if we just cash out now and what should have been done at the time of her death.

 

Am I correct in understanding that if she died in 2007 it became ours in 2007 and do we have to report this on 2007 tax return?

 

I read the document listed but am confused. Yes it will be taxed if we remove the funds, but does age matter on tax rate or what is taxed ( not income- do not presume we'll have less taxable income in future)

 

I'd like to invest in my husband and allow him to be able to take a teaching gig that will pay almost nothing but will position him for future jobs and income. Cashing out the 403b would help make this a possibility.

 

Your input? Thanks in advance.

 

 

Your situation is complicated and you should consult a tax advisor or CPA for answers to the following Q:

 

Q1 Did your mother in law receive her minimumum required distributions (MRD) for 2007 from her 403b plan before her death? Under IRS rules the MRD must be paid out each year and if the owner dies before receiving the payment for the year of death the MRD must be paid to the beneficiary of the account. If the MRD was not paid out by 12/31/07 a 50% tax may be imposed on the MRD amount that was not distributed. If the MRD as not paid you need to consult with a tax advisor. If an MRD was paid to your mother in law in 2007 Oppy would have sent an IRS form 1099 to her showing the amount of the payment. By the way your mother's representative ( your H?) is responsible for filing his mother's income tax return for 2007 depending on the amount of income she received before her death and her estatate will be required to file an income tax return (1041) for income paid to her after her death. Which is another reason for consulting a tax advisor.

 

Q2 If you H is the sole beneficary he should be able to transfer the amount of the 403b annuity to an inherited IRA at any financial institution that sponsors IRAs. Under IRS rules he must take an MRD beginning 2008 based upon his age 56 which would allow payments to be made over about 29 years. IRS publication 590, available free at irs.gov contains instructions on creating an inherited IRA. This is another reason to consult a tax advisor. If he doesnt want to receive MRDs your H can elect to receive a distribution of the entire account balance in a lump sum in 2008 and it will be taxed as as income at tax rates beginning at 10% plus any state income taxes. If you are in the 10% bracket for taxable income up to about 16k then the taxable value of the 403b account will be added to other your income that would be taxed to you in 2008 which could result in taxation rates of 15%, 25% or higher rates depending on the amount of the distribution. This is another reason to roll over the funds to an inherited IRA so as to avoid paying a higher rate of income tax than would be imposed if MRDs were taken. If the funds are transferred to the inherited IRA by 12/31/ 2008 your H can take them over the IRS life expectancy tables or more rapidly if he wants to. If the rollover to the IRA does not occur by 12/31/08 the the entire amount in oppy account would have to be distributed to him no later than 12/31/2012.

 

3. Since there may be other issues that you are not aware of your H needs to consult with a tax advisor before taking any action. There may also be estate tax issues for which he should consult an attorney.

 

 

 

Intruder is 100% right ... Do not seek a fee based financial advisor ... They are not legally authorized to give tax advice ... If you have to ... Go out of state (depending on how big of an account you have) and seek out a respectablr CPA firm !!

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Guest Sierra

 

 

My mother in law passed last September and left a 403b with my husband as beneficiary. She was 84 and my husband is 56.

 

The fund is oppenheimer and has lost 10,000 since her death.

 

We are in a very low tax bracket, the lowest and would like help understanding the tax implications if we just cash out now and what should have been done at the time of her death.

 

Am I correct in understanding that if she died in 2007 it became ours in 2007 and do we have to report this on 2007 tax return?

 

I read the document listed but am confused. Yes it will be taxed if we remove the funds, but does age matter on tax rate or what is taxed ( not income- do not presume we'll have less taxable income in future)

 

I'd like to invest in my husband and allow him to be able to take a teaching gig that will pay almost nothing but will position him for future jobs and income. Cashing out the 403b would help make this a possibility.

 

Your input? Thanks in advance.

 

 

Your situation is complicated and you should consult a tax advisor or CPA for answers to the following Q:

 

Q1 Did your mother in law receive her minimumum required distributions (MRD) for 2007 from her 403b plan before her death? Under IRS rules the MRD must be paid out each year and if the owner dies before receiving the payment for the year of death the MRD must be paid to the beneficiary of the account. If the MRD was not paid out by 12/31/07 a 50% tax may be imposed on the MRD amount that was not distributed. If the MRD as not paid you need to consult with a tax advisor. If an MRD was paid to your mother in law in 2007 Oppy would have sent an IRS form 1099 to her showing the amount of the payment. By the way your mother's representative ( your H?) is responsible for filing his mother's income tax return for 2007 depending on the amount of income she received before her death and her estatate will be required to file an income tax return (1041) for income paid to her after her death. Which is another reason for consulting a tax advisor.

 

Q2 If you H is the sole beneficary he should be able to transfer the amount of the 403b annuity to an inherited IRA at any financial institution that sponsors IRAs. Under IRS rules he must take an MRD beginning 2008 based upon his age 56 which would allow payments to be made over about 29 years. IRS publication 590, available free at irs.gov contains instructions on creating an inherited IRA. This is another reason to consult a tax advisor. If he doesnt want to receive MRDs your H can elect to receive a distribution of the entire account balance in a lump sum in 2008 and it will be taxed as as income at tax rates beginning at 10% plus any state income taxes. If you are in the 10% bracket for taxable income up to about 16k then the taxable value of the 403b account will be added to other your income that would be taxed to you in 2008 which could result in taxation rates of 15%, 25% or higher rates depending on the amount of the distribution. This is another reason to roll over the funds to an inherited IRA so as to avoid paying a higher rate of income tax than would be imposed if MRDs were taken. If the funds are transferred to the inherited IRA by 12/31/ 2008 your H can take them over the IRS life expectancy tables or more rapidly if he wants to. If the rollover to the IRA does not occur by 12/31/08 the the entire amount in oppy account would have to be distributed to him no later than 12/31/2012.

 

3. Since there may be other issues that you are not aware of your H needs to consult with a tax advisor before taking any action. There may also be estate tax issues for which he should consult an attorney.

 

 

 

Intruder is 100% right ... Do not seek a fee based financial advisor ... They are not legally authorized to give tax advice ... If you have to ... Go out of state (depending on how big of an account you have) and seek out a respectablr CPA firm !!

 

 

I would make an appointment with the local IRS office. No need to pay a fee if you do not have to.

 

Let us know how you make out.

 

Joel

 

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Joel:

 

Just because the IRS is free doesnt mean its good.

 

1. The reason H should go to a tax advisor is that the IRS does not give tax advice which is what he needs. For example the IRS will not tell him if he is elgible for an exemption from paying the 50% excise tax for the failure to take the MRD.

 

2. Why do you think he will get the correct answer from an IRS represenative at a walk in office? Most IRS agents are ignorent of the rules for retirement plan distributions becaause they are only trained in general tax laws. Also at this time of year the IRS is overloaded with people who have questions on their tax returns so be prepared for a long wait. The IRS does not provide advice on the federal estate tax.

 

3. The IRS will not advise him of which of his options will result in the lowest income tax.

 

4. He may have issues under state income or estate tax for which he needs to consult a tax advisor.

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Guest Sierra

Joel:

 

Just because the IRS is free doesnt mean its good.

 

1. The reason H should go to a tax advisor is that the IRS does not give tax advice which is what he needs. For example the IRS will not tell him if he is elgible for an exemption from paying the 50% excise tax for the failure to take the MRD.

 

2. Why do you think he will get the correct answer from an IRS represenative at a walk in office? Most IRS agents are ignorent of the rules for retirement plan distributions becaause they are only trained in general tax laws. Also at this time of year the IRS is overloaded with people who have questions on their tax returns so be prepared for a long wait. The IRS does not provide advice on the federal estate tax.

 

3. The IRS will not advise him of which of his options will result in the lowest income tax.

 

4. He may have issues under state income or estate tax for which he needs to consult a tax advisor.

 

 

The IRS is not free!!! It is sustained by the taxpayers of the US of A!!

 

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"The IRS is not free!!! It is sustained by the taxpayers of the US of A!!"

Nor will you get quality and consistent advice from them. I'd rather put my trust in a reputable CPA.

 

 

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Guest Sierra

"The IRS is not free!!! It is sustained by the taxpayers of the US of A!!"

Nor will you get quality and consistent advice from them. I'd rather put my trust in a reputable CPA.

 

Vince:

 

In my view there is no rush to hire a CPA. Going to a fee for service preparer may very well be the right thing to do AFTER one seeks out the steps that must be followed. The IRS will provide those steps/processes that must be followed. If one has the self confidence to follow the steps that were provided by the IRS agent, all should be fine. If the self confidence is not present then the fee for service is the way to go.

 

Having said that, when the CPA has a question about an issue more times than not he/she presents the issue/question to the IRS and the IRS responds with an "information letter". It is my understanding that the type of questions raised by "just learning" are handled by the national office in Washington, DC.

 

Peace and Hope,

Joel

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"The IRS is not free!!! It is sustained by the taxpayers of the US of A!!"

Nor will you get quality and consistent advice from them. I'd rather put my trust in a reputable CPA.

 

Vince:

 

In my view there is no rush to hire a CPA. Going to a fee for service preparer may very well be the right thing to do AFTER one seeks out the steps that must be followed. The IRS will provide those steps/processes that must be followed. If one has the self confidence to follow the steps that were provided by the IRS agent, all should be fine. If the self confidence is not present then the fee for service is the way to go.

 

Having said that, when the CPA has a question about an issue more times than not he/she presents the issue/question to the IRS and the IRS responds with an "information letter". It is my understanding that the type of questions raised by "just learning" are handled by the national office in Washington, DC.

 

Peace and Hope,

Joel

 

Joel:

 

What what answers will an information letter from the IRS provide to Just Learnings H in order for him to make an informed decision regarding the taxation of the IRA he inherited from his mother?

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Guest Sierra

"The IRS is not free!!! It is sustained by the taxpayers of the US of A!!"

Nor will you get quality and consistent advice from them. I'd rather put my trust in a reputable CPA.

 

Vince:

 

In my view there is no rush to hire a CPA. Going to a fee for service preparer may very well be the right thing to do AFTER one seeks out the steps that must be followed. The IRS will provide those steps/processes that must be followed. If one has the self confidence to follow the steps that were provided by the IRS agent, all should be fine. If the self confidence is not present then the fee for service is the way to go.

 

Having said that, when the CPA has a question about an issue more times than not he/she presents the issue/question to the IRS and the IRS responds with an "information letter". It is my understanding that the type of questions raised by "just learning" are handled by the national office in Washington, DC.

 

Peace and Hope,

Joel

 

Joel:

 

What what answers will an information letter from the IRS provide to Just Learnings H in order for him to make an informed decision regarding the taxation of the IRA he inherited from his mother?

 

Try it out as I have---these letters are quite informative and helpful. After digesting the contents of the information letter the taxpayer would be better equipped to answer the question: Should I do it myself or hire a pro?

 

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"The IRS is not free!!! It is sustained by the taxpayers of the US of A!!"

Nor will you get quality and consistent advice from them. I'd rather put my trust in a reputable CPA.

 

Vince:

 

In my view there is no rush to hire a CPA. Going to a fee for service preparer may very well be the right thing to do AFTER one seeks out the steps that must be followed. The IRS will provide those steps/processes that must be followed. If one has the self confidence to follow the steps that were provided by the IRS agent, all should be fine. If the self confidence is not present then the fee for service is the way to go.

 

Having said that, when the CPA has a question about an issue more times than not he/she presents the issue/question to the IRS and the IRS responds with an "information letter". It is my understanding that the type of questions raised by "just learning" are handled by the national office in Washington, DC.

 

Peace and Hope,

Joel

 

Joel:

 

What what answers will an information letter from the IRS provide to Just Learnings H in order for him to make an informed decision regarding the taxation of the IRA he inherited from his mother?

 

Try it out as I have---these letters are quite informative and helpful. After digesting the contents of the information letter the taxpayer would be better equipped to answer the question: Should I do it myself or hire a pro?

 

Joel:

 

You still havent answered my question of what help an IRS information letter can provide to the tax questions that confront Just learnings H. Saying that information letters are informative is a non answer. According to the IRS website an Information letter only provides a general legal statement of well defined law without applying the law to a specific set of facts. The applicable tax law has been defined in prior posts. What H needs is an analysis of how the tax law applies to his specific fact situation but the Information letter will not answer the question of which option will result in the least amount of tax that will be due or answer any state tax issues. Only a tax advisor can provide those answers.

 

 

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