100% tax on IRA?
Does anyone know how an inherited IRA or other retirement account could be taxed to 100% of the value of the account?
Is there a court case (or other ruling, etc.) that limits taxing an inherited account to 100%?
Was there situation where an account in the past was initially taxed at more than 100%?
Permalink Submitted by Alan Spross on Fri, 2010-04-30 19:08
It would be possible if the 50% excess accumulation penalty was levied in addition to ordinary income taxes on the actual distribution. The accumulation penalty is based on the amount that should have been taken out as an RMD. If the IRA owned passed prior to their required beginning date and no RMDs were taken for 5 years, the 5 year rule would require distribution of the entire account. If not taken the penalty is 50% of the value of the account or 50% of the amount that should have been distributed whichever is less. State and federal taxes on the distribution could exceed 40%, and if the value of the account dropped at the time of the calculation, they could all total up to 100%. Unlikely, but possible.
The tax code specifies these tax and penalty provisions, and there is nothing there that limits these costs to a particular percentage. If someone indicates a 100% tax, it would have to include the excess accumulation penalty to get near that figure.