Q: Back in 2017, I inherited an IRA from my aunt. She was 75 when she died. From all I’ve read, I think I have to distribute and pay tax on this entire IRA by the end of the 10th year after her death. I’m now doubting myself. Does the 10 year Inherited IRA rule apply to me?
A: Given the year of your aunt’s death, you are not subject to the 10-year Inherited IRA rule. Your confusion is understandable, however.
Starting in 2020, non-spousal IRA beneficiaries do only have 10 years to distribute and pay tax on their Inherited IRAs. But, for Inherited IRAs received before 2020, the old “stretch IRA” rules still apply. These rules allow you to “stretch” your IRA distributions over your expected lifetime based on an IRS mortality table. Of course, you do still have to take required minimum distributions each year, but they are based on your age.
Q: I’ve reviewed my 2023 tax return and appear to have a lot of capital loss carryovers. I’m feeling upset that my investment people didn’t use the losses by selling some of my investments that I hold with big gains. Are they totally wasting my past losses by not realizing some of my gains?
A: Don’t be upset that your investment advisor didn’t realize capital gains to use up your loss carryovers. Those loss carryovers don’t ever expire.
Because of this, other than selling them for portfolio restructuring reasons, there really is no compelling reason to realize capital gains from a tax planning perspective. Just know that when you need or want to sell those investments at a gain, your loss carryovers are available to offset your future capital gains.
Q: It appears the donations I made from my IRA were not subtracted on my recent tax return. When asked, my tax preparer told me he cannot change the information that was reported on Form 1099-R (our IRA tax form.) I’m confused. Please clarify.
A: He definitely shouldn’t ignore what it says on your Form 1099-R. That data should be entered on your tax return just as it is shown. After all, this Form 1099-R shows everything that came out of your IRA for the tax year, whether some of it was donated to charity or not. The IRS has a copy of that form and your tax return should certainly be aligned.
But, your tax preparer does need to give you credit for your IRA donations. Tax prep software has a special spot to account for your “Qualified Charitable Donations (QCDs).” When entered correctly, it will give you credit for your IRA donations and allow you to enjoy your deserved tax break.
