Iota Financial Logo

Unexpected Windfall? Don’t Get Blindsided By These 6 Costly Inheritance Tax Traps

The phone rings. It's your CPA. "I've been reviewing your inheritance situation and I have some concerns," he says. Your heart sinks. You just received word that a distant relative left you their vacation home and IRA. This windfall was supposed to be a blessing, not a burden.

Unexpected Windfall? Don’t Get Blindsided By These 6 Costly Inheritance Tax Traps

The Communication Maze 

But your CPA starts peppering you with questions. Should the property be sold or rented? There are tax implications in both cases. How will the inherited IRA impact your current retirement strategy? He needs to consult with your financial advisor before finalizing your returns.

You contact your advisor, who asks even more questions. Capital gains on the property sale? Required minimum distributions from the IRA? He needs to talk to your CPA first.

You're stuck in the middle, endlessly relaying messages back and forth. A simple inheritance has turned into a complex maze of planning. If only your CPA and financial advisor could collaborate directly, instead of treating you like a carrier pigeon.

The Integrated Solution

But what if there was another way? Imagine working with a firm that combines financial and tax planning, tax preparation, and wealth management under one roof. Where your CPA and advisor sit down together, face to face, mapping out a cohesive strategy. No dropped balls. No communication lag. Just seamless coordination on YOUR behalf.

This dream is now a reality. Iota Financial's integrated team of tax and finance experts provide comprehensive inheritance guidance. They anticipate issues, ask the right questions, and deliver tailored solutions to protect and optimize your windfall. You're treated like family, not just another file passing desk to desk.

Key Inheritance Considerations

So, what are some of the key considerations when you get that windfall? The stakes are high when inheriting property and retirement assets. One wrong move can lead to costly taxes and lost opportunities. 

Inherited Property 

If you've inherited real estate like a vacation home, there are several factors to weigh:

  • Should you sell or keep the property? Selling may trigger capital gains taxes, but keeping it also has expenses like maintenance, insurance, utilities, etc.
  • If renting out the property, you must report rental income. But you can also deduct related costs like property management fees and repairs. 
  • If you already own a home, owning a second vacation property can complicate capital gains exclusions when you eventually sell.
  • Estate taxes may still be due on the property value, reducing your overall inheritance amount.

As you can see, the property decision is not straightforward. An experienced advisor can project cash flows from rent vs. sale to help determine the optimal path.

Inherited Retirement Accounts

Inheriting someone's IRA or 401(k) also raises planning issues:

  • Non-spouse inheritors cannot roll over the funds into their own IRA. Special "inherited" IRAs must be used. 
  • Required minimum distributions (RMDs) generally must start the year after the original owner's death. 50% must be withdrawn by year 5 for most non-spouse inheritors.
  • Withdrawals from inherited IRAs are taxed as ordinary income, diminishing the value faster. 
  • Inheriting retirement funds can complicate your own required minimum distributions if over age 72.

Proactive planning of the inherited IRA is vital to minimize taxes and maximize your legacy benefit.

Comprehensive Guidance

Other key inheritance issues involve estate taxes, setting up trusts, gifting funds to heirs, and estate law. It's critical to work with a team that understands both the financial and tax complexities.

Our goal is simple - maximize the value of your inheritance while minimizing taxes and headaches. No more coordinating separate advisors or deciphering perplexing jargon. We speak your language and have your best interests in mind. Contact us today to schedule a free consultation.

800 Mount Vernon Hwy NE
Suite 350 
Sandy Springs, GA 30328
Iota Financial Logo
© Iota Financial • All Rights Reserved