Discussion:Inherited IRA and Kiddie Tax
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Discussion Forum Index --> Tax Questions --> Inherited IRA and Kiddie Tax
| 18 April 2008 | |
| 3 Minor Children have inherited taxable IRA from their grandmother who did not handle her affairs properly, no beneficiaries were named by her when she received it as beneficiary of her deceased husband.
Cannot find this anywhere here or in writing elsewhere, but IRS on two tax help calls has advised their parents that the IRA when distributed to their children is not investment income but is IRD and as such is not subject to the kiddie tax as was not investment income to their grandmother, and is treated as straight income. Anyone ever deal with this issue, which admittedly should be fairly rare? | |
| 18 April 2008 | |
| The directions for Form 8615 (line 1) appear to say otherwise. If the child has no earned income, then "investment income" for purposes of the kiddy tax = child's AGI. Investment income for one tax purpose may not be the same as investment income for another purpose.
Perhaps others have a different take. | |
Death&Taxes (talk|edits) said: | 18 April 2008 |
| I agree with NY....the Kiddie tax only seems to exclude W-2, Sch C or self-employment on Sch E. I believe this question was asked before with the same result.
Congressional intent originally was to prevent high incomes from shifting assets and the income they bring to children, and perhaps a reading of old committee reports might establish this but this will require someone with much patience and time to make this determination. Obviously death is not a tax shifting strategy. | |
| 18 April 2008 | |
| Bear in mind that the supposed IRS position on IRD is nonsensical in that interest, dividends and capital gains can all fall into that category. ♫ | |
| 18 April 2008 | |
| The kiddie tax doesn't really apply to investment income. Instead, it applies to all income that is not earned income (as defined in Sec. 911(d)(2). An IRA distribution is not earned income under Sec. 911(d)(2). Therefore, it is unearned income subject to the kiddie tax rules. When you call the IRS for tax advice, you get what you pay for. | |
