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Discussion Forum Index --> Advanced Tax Questions --> Inherited annuity taxation
Discussion Forum Index --> Tax Questions --> Inherited annuity taxation
LSC CPA (talk|edits) said:
| 24 April 2008
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| I have a client whose father passed away and left an annuity which will be distributed to him and his siblings. The investment co. told him the full amount of the distribution will be taxable to him. He wants to know if he rolls it over into an IRA or his company's 401k, will it avoid taxation. From everything that I have read, it appears to me that there is no way that he can avoid taxation on the distribution (I am also assuming that there will be a reduction in income to take basis into consideration). Is anyone aware of any creative ways that he can redirect this $ to avoid taxation? I don't see any, but I know there are those here who are much better experts than I am on this. Thanks.
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Blrgcpa (talk|edits) said:
| 24 April 2008
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| Is the annuity a qualified or non-qualified one? That may make a difference.
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LSC CPA (talk|edits) said:
| 24 April 2008
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| I am going to guess at this point that it is a qualified annuity, as the investment co. told my client that all distributions would be taxable. So I am assuming there is no cost basis. But even if it is part of a retirement plan or held in an IRA, I don't believe that it can be rolled over into anything, and that it would follow the same rules as inherited IRAs. But I just want to make sure I'm not missing something here. We have maybe one or two clients who we've had this issue with before, but none of them asked about rollovers, and from what I can see in the literature, I don't see where that's possible, so I'm looking for any other alternatives that I might not be aware of. Can't find any, but thought maybe someone here might know. Thanks.
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Kevinh5 (talk|edits) said:
| 24 April 2008
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| I agree with Barb - find out then come back and ask. You need to do your homework with the client before you come here for help because we could send you down the wrong path based on your 'guess'. Not that we would intentionally do it, but it happens. Ever play 'telephone' as a kid, where one person tells a story to the next who tells a story to the next, etc., until at the end the final story is nothing at all like the original?
Find out.
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Larousse (talk|edits) said:
| 30 April 2008
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| LSC, It could be a tax-deferred annuity where the principal has already been taxed but the income has not. If so, it is true that the heirs, the children, must report as income their share of the tax deferred income but not the principal which comprises the basis in the account. However, if the estate was a taxable estate, then each heir can take a deduction on schedule A for their part of the estate taxes paid which was based on that income.
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