Taxation of IRA distributed to an Estate
If an estate is named Beneficiary of an IRA and the estate receives the lump sum distribution, can the estate pay the income tax rather than passing it through to the estate beneficiaries that ultimately receive the cash?
Permalink Submitted by David Mertz on Sun, 2018-09-23 15:22
The only way that the estate can incur the tax liability is if the estate is permitted to retain the income and does not pay it out to the estate beneficiaries in the tax year in which it was received by the estate. If the estate pays it out of the estate to the estate beneficiaries during the estate tax year it was received it is Distributable Net Income that must be taken as a DNI deduction on the estate tax return and reported to the beneficiaries on Schedules K-1 (Form 1041) for inclusion on the beneficiaries’ individual tax returns for the year that includes the end date of the estate tax year.