Ask the Expert: Divvying an IRA among 7 heirs
When an IRA is left to an estate, its tax deferral expires much faster. Credit: Photos.com
Certainly. The government doesn't care whether the income taxes on IRA distributions are paid immediately by the estate or paid over the next few years by the heirs.
As the executor, you're responsible for managing the assets in the will until they're distributed to the heirs. These assets include the $5,000 IRA because it was left to the estate. Under the circumstances you describe, it seems sensible for the estate to pay taxes on the IRA and distribute what's left. The alternative is to divide the estate's inherited IRA into seven new inherited IRAs, each worth $714. If you do that, the heirs must empty those accounts over the remaining life expectancy of the 81-year-old decedent, says Barry C. Picker, a Brooklyn tax accountant. That's 9.7 years, according to the Internal Revenue Service actuarial table.
If the heirs had been named as the IRA beneficiaries instead of the estate, the account would have passed to them outside the will. And as the IRA beneficiaries, they'd have been able to stretch minimum annual distributions over their own life expectancies. For a 10-year-old, that's 72.8 years; for a 40-year-old, 43.6 years.
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