No. of Recommendations: 0
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.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.