Impulsive niece closed her inherited IRA account which she had rolled over into a Vanguard Target Fund. I will be doing her taxes. What expenses can I expect . What taxes will she have to pay? Does Vanguard deduct those taxes at time of withdrawal or will she have a huge tax bill when filing? I don’t know what she did with the money when she emptied account.
Generally, money withdrawn from an inherited IRA is subject to federal and state ordinary income tax. She should receive a 1099-R from Vanguard that will show the amount withdrawn (Box 1), taxable portion (Box 2a, probably all of it) and any taxes withheld (boxes 4 and 14). Then you put the numbers on her 1040, line 4a and 4b, as IRA distribution, and add any taxes withheld by Form 1099 in the Payments section of the 1040.
If she didn’t have any taxes withheld when she took the money out, she’ll have until April 15 to pay it. If she has a job that withholds taxes and she normally gets a refund, she may not owe much, depending on how much she withdrew.
So, if she inherited a $100,000 IRA and it increased to $120,000 by the time she sold it, she would have to pay taxes on $120,000? If so, would they take out the taxes at time of sale? Thank you once again.
If it increased to $120,000 and she took out $120,000, yes, she’d have to pay taxes on $120,000.
They might have withheld some for taxes, 10% is a common, default amount. She could look that up in her account online, or you could wait until you get the form 1099-R from Vanguard.
Yes, taxes are due because all of the IRA money (contributions, earnings) was pre-tax.
If that $20k were tax-free, that would be quite a loophole!!
Her inherited IRA will have to have been withdrawn completely within 10 years of the person’s death. It’s a shame she didn’t have a plan to do it gradually.
I had set up the rollover with RMDs for her for that very reason. For some reason, she emptied the account. I fear someone else influenced her. Not sure how to approach her about this. She is not returning my calls.
If the money was issued directly to her they would have at least withheld federal tax. It’s early January. It will be a few weeks before statements are issued. Everything will be online for her to access. Unfortunately if she’s avoiding you there isn’t much you can do. Some people need to learn things the hard way.
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