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Who Should be the Beneficiary of Your Qualified Retirement Plan Benefits Vacovec, Mayotte & SingerQualified retirement plan benefits are generally included in a deceased participant''s estate under Internal Revenue Code 2039(a), which provides that a decedent''s gross estate includes the value of an annuity or other payment receivable by any beneficiary by reason of surviving the decedent. turbo tax 2002, taxes filing online free, colorado income tax, efile taxes, illinois tax forms, australian taxation department, nys income tax, tax return forms, property tax rates, federal income tax forms, inheritance tax laws, tax lien certificates, state income tax forms, franchise tax board, federal income tax rates, free tax programs, buy tax liens, texas state sales tax, tax act, file taxes online, tax rates, income tax questions, michigan income tax forms Tax rates. If the decedent''s taxable estate is less than or equal to the unified credit amount, including the retirement plan balances, there will be no federal estate taxes, regardless of who is the designated beneficiary of the plan balances, assuming the decedent has all of his or her unified credit available for use at death. If the decedent''s taxable estate is greater than the unified credit amount, including the retirement plan balances, or if the decedent has used some or all of his or her unified credit so that some amount of federal estate tax is due, the issue of who to designate as beneficiary of the plan balances becomes increasingly important. Unfortunately, a plan participant cannot transfer ownership of plan balances out of his or her own name in an effort to reduce estate taxes, unless he or she makes withdrawals from the plans. turbo tax 2002, taxes filing online free, colorado income tax, efile taxes, illinois tax forms, australian taxation department, nys income tax, tax return forms, property tax rates, federal income tax forms, inheritance tax laws, tax lien certificates, state income tax forms, franchise tax board, federal income tax rates, free tax programs, buy tax liens, texas state sales tax, tax act, file taxes online, tax rates, income tax questions, michigan income tax forms Tax bracket. Such withdrawals, however, may have adverse tax consequences of their own, such as the elimination of the income tax deferral and a 10% early withdrawal penalty (if the participant is under age 59 = at the time of withdrawal). IRC 72(t). In addition to the estate tax due on retirement plan balances at death, the beneficiary of retirement plan assets is usually subject to income tax on the distribution of such assets, since this property constitutes income in respect of a decedent ("IRD"). turbo tax 2002, taxes filing online free, colorado income tax, efile taxes, illinois tax forms, australian taxation department, nys income tax, tax return forms, property tax rates, federal income tax forms, inheritance tax laws, tax lien certificates, state income tax forms, franchise tax board, federal income tax rates, free tax programs, buy tax liens, texas state sales tax, tax act, file taxes online, tax rates, income tax questions, michigan income tax forms Federal income tax forms. IRD is defined as income generated (or earned) by the decedent before his or her death that is not realized (or received) until after his or her death. IRC 691. The beneficiary of IRD property is subject to income taxes on such property, just as the decedent would have been if he or she was still alive. IRC 691. All qualified retirement plan and IRA benefits constitute IRD since the decedent had a right to receive such benefits at the time of death. Therefore, when retirement plan funds are withdrawn, the beneficiary is subject to income tax on the distribution, just as the decedent would have been. The timing of distributions from retirement plans, therefore, determines when such income tax must be paid by the recipient of the funds. In general, if distributions have begun before the date of death, the remaining retirement plan funds must be distributed at least as rapidly as if the participant has survived. IRC 401(a)(9)(B)(i). If, on the other hand, the participant died before minimum distributions had begun, the plan balances must be distributed within five years of the date of death. IRC 401(a)(9)(B)(ii). If, however, the participant dies before his or her required beginning date (generally, April 1 of the year following the calendar year in which he or she reaches age 70 =) and he or she designates another individual as a beneficiary of the plan(s), the balances may be distributed over the lifetime of the designated beneficiary, as long as such distributions begin no later than one year after the participant''s death.
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