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Sep 17 2012 12:00AM


I cashed an inherited IRA from a trust for $101,000. What are the tax liabilities and can I still roll it over somehow to avoid taxes?


Although not a way in which one wants to receive money, the inherited IRA can be a blessing or a curse. Unfortunately, there are some tax ramifications of you receiving the money. It's a common misperception that people can take the inherited IRA and roll it over to avoid having receipt of the funds. The IRS says this is a no-go. A person must do a 'custodian to custodian' Transfer - meaning it must not go through your hands at all and must be transferred from one institution to another. Once it hits your hands, you unfortunately can no longer do a rollover and the full amount is considered taxable income. 

Now--- how can you ease the pain? Well, if you have a 401(k) that you haven't maxed out for the year, you can do that and shelter some income; likewise for an IRA if you're eligible to open/contribute to one. 

What about charitable contributions? Have you ever wanted to 'front-load' a gift to a church or other favorite charity? (For example instead of gifting $500/year to an organization, you could do five year's worth and give them $2,500.) Or not sure which organization to gift to? Use a charitable gift fund, and then distribute smaller gifts throughout the years.    

Also, it is crucial that you figure out from the institution whether or not the original IRA owner took their required minimum distribution for this year.

This is a complex and involved area. I would strongly recommend that you seek individual tax/financial advice regarding your particular circumstances and actions thus far.  

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