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Financial Website Directory Ireland

Enrolled Agent Advice Needed Soon After IRA Owner Dies

Author: Sawyer Adams
Category: Tax Preparation
Date Added: August 02, 2011 09:27:14 PM
Page Views: 2136

Swift action is required when an IRA owner dies in order to minimize the tax imposed on future distributions. Beneficiaries of IRAs often require enrolled agent work for help in making correct decisions. IRA beneficiaries usually will not find much assistance from the financial institutions that have custody of the accounts. Instead, an enrolled agent is the best channel of advice.

Further complicating the process is the fact that IRA distribution rules have changed over the years. This situation causes many taxpayers to obtain misleading information from uninformed individuals who lack enrolled agent certification.

For example, several years ago, beneficiaries of IRAs were required to take IRA distributions in the same amounts as account owners were receiving before their deaths. This rule was later amended to permit beneficiaries to obtain distributions over their life expectancies. Tax professionals who complete annual enrolled agent continuing education requirements have remained informed about this change.

IRA beneficiaries can also still choose distributions over the life expectancy of the IRA owner. The life expectancy table is used by finding the IRA owner's age in the year of death and reducing that figure by one for each year after the year of death.

Of course, the tax rules for an IRA beneficiary are a little different if the account owner dies before beginning distributions. In those cases, beneficiaries base required minimum distributions on their own life expectancies.

Beneficiaries need to hurry in addressing IRA balances. This is especially important when there have been no distributions yet in the year of death. If the required minimum distribution is not taken before the year ends, the beneficiary is required to take the lump sum of the account within five years. This can significantly increase the tax bite.

That five-year requirement is always applied when the IRA beneficiary is not an individual. However, distributions from an IRA to a non-individual can continue based upon the account owner's life expectancy if required minimum distributions had already begun prior to death.

Special treatment remains in place for surviving spouses. Situations where a surviving spouse is the sole IRA beneficiary are covered in every enrolled agent study guide. Surviving spouses may roll over an inherited IRA to their own IRAs. They may also take lump sum distributions. But they also are entitled to treat an inherited IRA as their own account. This option is not available to other types of beneficiaries.

The decision of a surviving spouse inheriting an IRA impacts the amount of required minimum distributions. In some cases no distribution is required. The choice is also influenced by whether the decedent had already received any required minimum distribution for the year of death. Examination of various potential scenarios is required to determine the action that minimizes the tax impact.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Fast Forward Academy is a leading publisher of education for enrolled agent work and tax professionals. Access to free questions for the enrolled agent is available on their website.

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