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Your IRA or Roth IRA is Included in Your Taxable Estate

This question comes up from time to time. Taxpayers believe that because they have already paid the income tax on Roth IRAs that the Roth IRA balance will not be included in the estate for estate tax purposes. The other myth I have heard is that when you have a trust named as beneficiary of the IRA, or Roth IRA, that this will not be included as part of your taxable estate.

As the title indicates, your IRA or Roth IRA will be included as part of your taxable estate at your death. Now that does not mean that it will be taxable. The estate tax exemption for 2011 and 2012 is $5,000,000 per person and is portable to the surviving spouse. Only IRA owners with estates of more than $10,000,000 (with the right planning) will pay federal estate tax if they die in these two years.

Where does it say this? Private Letter Ruling (PLR) 200230018 lays it all out for you. It includes mention of Code Section 2001(a) that imposes the estate tax on every citizen or resident of the US. Section 2031 states that the value of all property is includable in the estate, Section 2033 provides for the inclusion of partial interests in the estate, and Section 2039 (a) and (b) deals with annuity payments. It concludes that IRAs are includable in the taxable estate.

IRS Publication 590, Individual Retirement Arrangements (IRAs) also includes a section on estate tax where it states that IRAs are includable in the gross estate of a decedent. The introduction to the Roth section of this publication states that information in the IRA section of the guide applies to Roth IRAs unless noted in the Roth IRA section. Thus the estate tax inclusion applies to Roth IRAs as well as to Traditional IRAs.

By IRA Technical Consultant Beverly DeVeny and Jared Trexler
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*Copyright 2011 Ed Slott and Company, LLC


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