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What is the most tax effective way to receive an inheritance check/money?

Is there a way to receive money from an inheritance without having to pay tax? If not, how do you minimize the amount that you have to pay?

 

  • Location: Unknown, MA
  • Amount in Savings: $250,000
  • Household Income: $100,000-$300,000
  • Source: Wimple 401K Calculator


Answers and Comments

Matthew Sullivan
November 6, 2020

It always seems in order to answer a question we ask more questions....

Is the inheritance qualified funds? Meaning is it from an IRA or retirement plan or annuity?  This would lead to one set of possible actions. 

Is it just taxable money?  If so then most likely not taxable at all to the recipient, but if the estate is over a certain amount the estate may be liable for taxes that could impact the amount recieved.

Is it life insurance proceeds?  Should not have income tax implications but may have estate tax implications.

Get the details and talk to a professional. 

Richard Stumpf
November 6, 2020

Unless you are inheriting a huge estate, there is no estate tax.  If there are assets coming to you from a retirement account (IRA,401k, etc) then that money has never had income tax paid on it before, so you will have to pay income tax on it now.  Can you defer that?  A little.  But much of the benefit of what we called the "stretch IRA" is now gone.  Life insurance? tax free.

Robert Bell
December 14, 2020

I must agree with my financial brothers. There is no simple answer nor a "one-size" fits all formula. A qualified financial person will have a number of questions. The amount inherited due to estate tax. Is the money "qualified" ( 401k, 403b, IRA, etc.) or "non-qualified". Is a trust involved? Plus, other questions and information needed by a qualified financial person. If a person does NOT ask you for the above mentioned information, go someplace else and leave skid marks when leaving. 


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