Inheritances can create a range of feelings and questions. You are dealing with your grief at the loss of a parent, grandparent, or someone that loved you at the same time at the same time that you are encountering a financial windfall. You’ll need to give yourself time to grieve, and to understand that you may not be completely focused on the inheritance.
Types of Inheritances and Related Taxation
An inheritance can take a number of forms, and each has unique characteristics with respect to access and taxation. The four primary forms are cash, proceeds from a Roth IRA, or a Traditional IRA, real property – home(s) and vehicle(s), and an interest in a closely held business.
The contents of either a Roth or a Traditional IRA may be transferred in kind into a Beneficiary IRA which carries your name. The IRS requires that the contents be withdrawn over a 10-year period, beginning with the date of death of the account owner. 1. Roth IRA accounts are not subject to income tax, but are subject to the 10-year rule. 2. Traditional IRA withdrawals are taxed as ordinary income. 3. A device that is often used to bypass probate is called a Living Trust. If this is in place, the Trustee will distribute the proceeds of a sale to the beneficiaries. 4. Sale of a business is far more involved if not properly planned.
Take Time for Yourself
Once the steps outlined in the graphic above are completed, we recommend that you take no action for a while, to get used to having these additional resources. It is natural to expect that there may be an impulse to buy something significant as soon as the funds are available. However, a quick purchase might not be in your best interest over the long term.
We also recommend that you work with your CFP® to see how this fits into your financial plan, and if your plan needs to be updated. If you don’t have a CFP®, we encourage you to select one to assist with creating your family’s financial plan, and determining how these assets will augment your current resources, taking time and taxation into account. We stand ready to assist you with this task.
Feel free to reach out to us if can be of assistance to you:
The commentary is informational in nature and not intended to imply a specific strategy or course of action. Investment advice and recommendations are only provided according to each individual’s personal circumstances. Chancellor Wealth Management is an investment advisor firm registered pursuant to the laws of the state of Georgia. The firm is also registered to conduct business in the states of South Carolina and Texas. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright © 2021 Chancellor Wealth Management, All rights reserved.