So, you’re looking to minimize taxes? On the Get Ready For The Future Show, we’re answering YOUR questions! Like this one from Jerry in Sherwood:

“Is there any way to reduce the burden of taxes for inherited IRAs; except converting to a Roth. I’ve just about decided to start reducing it yearly and paying the taxes myself, but I was wondering if there was anything else I
could do. I would like to know what kind of an immediate annuity that you have, since that would be one way. I know I could not pass anything to the heirs that way, but it is one option I am interested in?”

The bad news is that there really isn’t much you can do to avoid taxes on inherited IRAs, especially due to the SECURE Act of 2020. However, there are some helpful strategies to manage them as best as possible, AND you can work to avoid passing the tax stresses on to your loved ones.

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❓ Have your own questions? Call or text us at 501.381.5228 or email show@getreadyforthefuture.com. And catch the Get Ready For The Future Show anywhere you get your podcasts.

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Reduce burden taxes on Inherited IRAs

Inherited Individual Retirement Accounts (IRAs) can be a valuable asset passed down from a deceased loved one. However, the burden of taxes associated with these inherited accounts can be quite substantial. To alleviate this burden, there is a need to implement measures that reduce the taxes on inherited IRAs and make it easier for individuals to access their inherited funds.

One way to achieve this is to revise the tax code to allow for a longer distribution period for inherited IRAs. Currently, non-spousal beneficiaries of IRAs are required to withdraw the funds within 10 years of the original owner’s death. This accelerated distribution can lead to higher tax liabilities, especially if the beneficiary is in a higher tax bracket. By extending the distribution period, beneficiaries would have more flexibility in managing their tax obligations and may be able to spread the withdrawals over a longer period to minimize the tax impact.

Another measure that could reduce burden taxes on inherited IRAs is allowing beneficiaries to rollover the inherited funds into their own IRAs. Currently, only spouses are allowed to do this, while non-spousal beneficiaries are required to open an inherited IRA which has different withdrawal rules and tax treatment. Allowing beneficiaries to roll over the inherited funds into their own IRAs would provide them with the same tax advantages and distribution options as if they had earned the funds themselves. This would simplify the tax process and reduce the burden of taxes on inherited IRAs.

In addition to these changes, it would also be beneficial to provide clearer guidelines on the tax treatment of inherited IRAs. The current tax code is complex and can be difficult for individuals to navigate, leading to potential errors or misunderstandings that result in higher tax liabilities. By providing clearer rules and guidelines, beneficiaries would have a better understanding of their tax obligations and may be able to reduce their tax burden.

Furthermore, it would be helpful to provide educational resources to beneficiaries regarding the tax implications of inherited IRAs. Many individuals may not be fully aware of the tax consequences associated with these accounts and may unknowingly make decisions that increase their tax liabilities. By offering educational materials and resources, beneficiaries can make informed decisions about their inherited IRAs and take steps to minimize their tax burden.

Reducing the burden of taxes on inherited IRAs is essential to ensure that individuals can access their inherited funds without incurring exorbitant taxes. Implementing measures such as extending the distribution period, allowing rollovers into personal IRAs, providing clearer guidelines, and offering educational resources can help achieve this goal. By making these changes, we can create a more equitable and accessible system for individuals who inherit IRAs, allowing them to benefit from their loved one’s financial legacy without being overwhelmed by taxes.