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I am a beneficiary of an IRA account. How will I be taxed when I recieve the money from the account?


Expert Eugene Jaspan's Answer:

 You have 3 choices:


1. Take it all as a lump sum

2. Take it as equal payments over a period of 5 years.

3. Take it in equal installments over the remaining years of your life (based on life expectancy).


You will be taxed on the distributions as ordinary income.  Unless you are close to retirement age, you are best off doing option 3.  The money grows tax deferred over time and you take the least amount of distributions each year, which ends up being the least amount of tax.  You can always take more than the required minimum distribution in a given year if you have a need to do so.  Of course you will be taxed on whatever that distribution amount is.  In an ideal situation, this will leave you with the most possible money at retirement.  Presumably you'll have less income then, so the  distributions you take at that point will be taxed at a lower rate.  BTW, the bank or brokerage firm the holds your IRA will help you compute your life expectancy.

Eugene Jaspan, CPA

New Jersey

24 yrs experience

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