This is a very basic question, but what happens to IRA funds when the owner dies? I assume it becomes part of the estate but how is it treated for tax purposes? Sully
Greetings, Sully, and welcome.<<This is a very basic question, but what happens to IRA funds when the owner dies? I assume it becomes part of the estate but how is it treated for tax purposes?>>At death, the market value of the IRA is included in the owner's estate for estate taxation purposes. It is also subject to income taxation on receipt by the beneficiaries. No 10% early withdrawal penalty applies, but the distribution to those beneficiaries will be taxed. In general, a spousal beneficiary may treat the IRA as his/her own and the proceeds won't have to be distributed or taxed until that spouse elects to take the money. Other beneficiaries must take the money and pay tax. They can take it in annuity form payable over their life expectancy. If they don't do that, then they must take it all by the fifth anniversary of the owner's death. Proceeds are taxed to the beneficiary at the beneficiary's rate when received.Regards......Pixy
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