Are IRAs included in the value of the estate?

Question

Are IRAs included in the value of my estate for calcuating estate tax, if the beneficaries were my kids. Would it be different if it were rolled over to my spouse's IRA. I realize they would be taxed when they make the required withrawals each year.

Answer 1

IRA's are taxable at the time when you get distributions from it. The person receiving the distributions reports it on their own 1040 for the year the money is received. For a spouse, the IRA can be rolled over into their own IRA or be treated as their own IRA but they can choose to treat it as inherited distributions taxed in the same way your kids would be. It's a choice based on the best tax advantage at the time of distribution. There is no additional estate tax on it, unless it is first doled out to the spouse and then doled out to the kids. [But technically, I just described a possible gift tax scenario.] Since estate tax is inheritance from a deceased person, the answer is no additional estate tax on the IRA. Just the income tax based on your own income... otherwise known as a tax penalty. More than one individual can inherit from an IRA. The IRS doesn't want to double tax you.

Answer 2

The value of the contributions to an IRA are included in the value of the estate. The accumulated earnings are not since they will be taxable income to the person who makes the withdrawals eventually.