Solutions 4 Financial Independence: 9/20/18
Question: I just inherited a large IRA from my father...if I cash out the money, what taxes and penalties will I have to pay?
John Halterman Answer: First of all, I want to give you my sincerest sympathy over the loss of your father, I know that's a tough thing to deal with, and also an inheritance can be a good thing, and also a bad thing, and when I say this, it's that it sounds like you want cash out the money, and if you do cash out the money, your going to have to be faced with some penalties and taxes, as you said. Basically, whatever you cash out is going to count as earned income for that year. So, you say a large amount, so if that amount is $500,000 than you have to report that on your taxes as if you earned $500,000 that year. When its a $500,000 tax bracket, that's going to put you at the very max of our tax brackets. Now, as in terms of your penalties, you know the IRS is very nice, because they say that if you cash out, and you are an inherited person, you will not have to pay the normal 10% penalty fees on it, regardless of if your below the age of 59 and a half or not. Now, one thing, you can keep that money, or you can put it in an inherited IRA for your benefit. The only thing you have to pay then, is the required minimum distributions each year, but this allows you not to have to cash it all out at one time, or the other option is you can do just a little bit of both. If you have any additional questions, please contact us. We'll be glad to help!