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ccpegasus: "My dad died in oct of 99. he had about 100k in two ira's. (both are mutual funds) HIS accountant says we can just 'take' the money and distribute it out to the rest of the family w/o any taxes. A 2nd accountant says we DO hve to pay taxes (which makes more sense to me...) because it is INCOME IN RESPECT OF A DECEDENT..\
Does either of these make any sense? my guess is that we DO hve to pay income tax on the income, since it wasnt taxed when it went into the IRA. His accntnt says that because it was mutual funds, our BASIS becomes the value at death, and we only pay taxes on increase in value since that time. Any hints out there?"


First, my condolences on the loss of your father. It is not easy to lose a parent.

Second, the resident pros will likely be along shortly to cite chapter and verse, but the 2nd accountant is correct - the income taxes will be due upon withdrawals from the IRAs (assuming that they are traditonal IRAs). Your father's accountant has mangled the law so badly that (in my cynicism) I wonder what else he might have mangled.

There are articles in the Fool archives that discuss withdrawals from inherited IRAs and how to try and stretch the benefits of the tax deferral. I seem to recall that the rules are different depending upon whether the decedent had start MRDs (or not) and whether the inheritor was a spouse or not a spouse (as in your case), but ccannot cite the details.

Hope this helps. Regards, JAFO
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