IRAs and qualified retirement plans are subject to federal and state income tax as well as estate taxes, which can greatly reduce their value. Whether you are planning your estate or are the beneficiary of an IRA of 401k, you should speak with a Pennsylvania estate attorney to learn how to reduce the retirement plan tax after death.

When a beneficiary receives a qualified retirement plan after a loved one’s death and cashes it out, this could place him or her in a higher tax bracket. The amount received will be considered taxable income, and the beneficiary may be required to pay a higher percentage of taxes.

Another form of an IRA tax after death is the estate tax. Even though retirement plans are considered non-probate property, their value is added to the entire value of the estate. Therefore, any probate property and assets must be used to pay the taxes for the estate value.

There are several ways to avoid paying a retirement plan tax after death. For example, if you are the beneficiary, you can open up an inherited IRA or transfer the assets to your own existing IRA. This will help you avoid any penalties and you will not be taxed.

If you are planning your estate, you can leave your retirement plans to a charity and other assets, such as real estate, to your loved ones. In this case, the charity will be exempt from paying retirement plan taxes after death and your family can avoid paying federal income or capital gains taxes.

Hire a Pennsylvania Estate Attorney

When planning your estate, it is important to keep the tax implications in mind and take measures to reduce the IRA tax after death. The Pennsylvania estate attorneys at Unruh, Turner, Burke & Frees are dedicated to helping you with your trust and estate needs. Contact our law office at 610-692-1371 (West Chester), 610-933-8069 (Phoenixville), or 610-240-0750 (Malvern) or fill out our convenient online form today.


David M. Frees, III
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Attorney, Speaker and Author