I received a IRA distributon from my Dad as a beneficary. Can I reinvest this into another IRA to avoid taxes?

Question

I was a beneficary of an IRA from my dad. I receivd the money and it is taxable. Can I roll it into another IRA or my 401k to avoid paying taxes and have it treated as income.

Answer 1

this is covered in IRS Publication 590, which can be read and printed online.

See http://www.irs.gov/publications/p590/ch01.html#d0e6010

in general, you must take a minimum required distribution each year beginning the year after your Father's death in an amount specified by the approprite IRS table.

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I'd advise you to open a separate IRA account for these funds. You will have to take a distribution equal to an increasing proportion of each year end's balance every year until the account is exhausted. If you co-mingle it with funds in your existing account, you'll have the bookkeeping problem of separating them on paper to calculate the minimum distribution.

As usual, if you fail to take a minimum required distribution in any year, a penalty is incurred IN ADDITION TO the income taxes due on the distribution. And, no -- that penalty is not deductible.

My guess is that you'll also need to file a form to show that you rolled over the distribution from your father's account into the new one. This form is your excuse for making what might otherwise be considered an excess contribution [which would also be subject to a penalty].

There is no free lunch. And won't be on this topic until Congress eliminates all taxes on capital assets and the income or gains they throw off. [ie: for Americans, not likely in our lifetimes.]

Answer 2

Nope.. well... lemme rephrase that...

the IRA of your dad was given to you paid out... you WILL have to pay taxes on that EVEN IF you then put the cash into another IRA...

No matter what you end up soing with the money.. it is still taxable income coming to you... the only way that it isn't taxable is if it stayed in your fathers name...

but that's illegal if he is deceased.