Inherited IRA
Our mother recently passed and left her IRA to be split between my brother and myself. We are listed as beneficiaries. We both want to cash it out. What tax impact would that bring to us? She was 89 when she passed and our ages are 68 and 70. IRA amount is around $70,000.
Quick Answer:
Since your mother was 89, she had already reached her Required Beginning Date. Because you are her children and not "eligible designated beneficiaries" (like a spouse or chronically ill individual), you fall under the **10-Year Rule**.
However, because your mother was already taking Required Minimum Distributions (RMDs), you must continue taking at least the annual RMDs for years 1 through 9, with the account fully emptied by the end of year 10.
**Tax Impact of Cashing Out Now:**
If you choose to "cash out" the full $70,000 (roughly $35,000 each) immediately:
1. **Income Tax:** The entire distribution is treated as ordinary income. It will be added to your other income (Social Security, pensions, etc.) for the current tax year.
2. **Tax Brackets:** A $35,000 spike in income could push you into a higher tax bracket or increase the taxation of your Social Security benefits.
3. **Withholding:** There is no 10% early withdrawal penalty due to your ages and the death of the owner, but federal and state income taxes will apply.
**Recommendation:** Consult with a professional to see if spreading the withdrawals over a few years would keep you in a lower tax bracket compared to a lump-sum payout.
Note: This answer is provided for convenience only. It is important that you speak to a CPA about your individual tax situation.
