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Subject:  taxes in year of inheritance Date:  9/10/2020  12:36 PM
Author:  katiewa Number:  131035 of 133118

After about eight years of progressing dementia, my mother-in-law died last month. Fortunately, she had enough assets, plus a daughter nearby, to ensure high-quality care. We had assumed that her care would substantially deplete those assets, but apparently it did not. I am working to sort out our tax situation for 2020. Following is what I think I understand:

* The inheritance is mostly individual stocks in taxable accounts, which are being transferred to DH in-kind with the stepped-up basis recorded as of the date of death. This part is straight-forward tax-wise.

* A small portion will be a traditional IRA which is being transferred to an inherited IRA for DH -- he has 10 years to fully deplete this account, with no required distributions during that time. This cannot be converted to a Roth IRA and we will be taxed on all distributions.

* DH and his sister are planning to use a portion of the inheritance to set up an endowed scholarship fund at Univ of Nebraska. For 2020 only, we can itemize this and other charitable contributions up to 100% of our adjusted gross income (AGI).

* We are planning to increase our traditional-to-Roth conversion for 2020 to increase our AGI and maximize the tax benefit of these charitable contributions. This is the part I really do not want to mess up.

Is this correct? Am I overlooking anything?


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