Is 401k Rollover IRA Taxed In Estate?

by Dorothy
(Alexandria, VA)

Today I met with an Elder Attorney and he wants to set me up with a Living Trust, one designed by him, and he wants it to include my condo, savings account and my IRA CD. He stated that there would be no taxes charged to the Trust or my benefactors upon my death.

However, I cannot understand how a Trust can keep taxes from being incurred on the IRA which was a rollover 401K that taxes have not been paid on yet. The amount is $100,000. He just said that was the way it was designed.

It is correct?

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Mar 25, 2011
Taxes to Heirs on IRA
by: Mo Johnson


You should double-check with your attorney for clarification. I believe there should be no estate taxes on your estate (assuming your estate is under $5 million). However, when your heirs begin to receive money from the IRA they should receive a form (1099 I think) reflecting the distribution and that will be reported as income to them to the IRS. Any portion of the IRA that has never been taxed should be taxable to the heir who receives it. Of course, it's possible they could wait some time before receiving distributions from the IRA and thus postpone taxes for quite some time.

Of course, this is not legal advice and I don't know your individual circumstances. This is just general information not necessarily applicable to your personal situation, so discuss it again with your attorney.

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