![]() ![]() “Many parts of the tax code are compromises, and all parts reflect the need for lines that can't be deduced from first principles. Fairness and making sense are entertaining things to discuss, but never to be relied on. Neither of those arguments stand up to one of Reilly's Laws of Tax Planning - It is what it is, deal with it. If it had been her own IRA, rather than an inherited one, it would have been fine. It is not fair and it doesn't make any sense. There are two apparently compelling arguments against the treatment that Ms. She could have gotten what she wanted - continued deferral of income taxes on the inherited IRA, but it had to be done by a trustee to trustee transfer, not through a rollover.Īlthough petitioners argue that their intent was to effect a trustee-to-trustee transfer, it is well established that a taxpayer's intention to take advantage of tax laws does not determine the tax consequences of his or her transactions. 408(d)(3)(C)(ii).Ī taxpayer is not treated as having received a taxable distribution from an IRA, however, if funds in the IRA are transferred from one account trustee directly to another account trustee without the IRA owner's or beneficiary's ever gaining control or use of the funds. An IRA is treated as inherited for purposes of section 408(d)(3)(C) if the individual for whose benefit the account or annuity is maintained acquired that account by reason of the death of another individual who was not his or her spouse. Rollover treatment is not available in the case of an inherited IRA. 2 They reported $2,828 as the taxable amount of the distribution on line 15b of their return.Ī rolled over IRA distribution. Petitioners reported an IRA distribution of $38,194 on line 15a, IRA distributions, on their 2008 Form 1040, U.S. Graystone Consulting is a business of Morgan Stanley Smith Barney LLC.Petitioner established an inherited traditional IRA with American Funds and deposited the death benefit distribution of $35,358 into the inherited traditional IRA in June 2008. ![]() ![]() Individuals are encouraged to consult their tax and legal advisors (a) before establishing a Retirement Account, and (b) regarding any potential tax, ERISA and related consequences of any investments or other transactions made with respect to a Retirement Account. Morgan Stanley does not provide tax or legal advice. For more information regarding Morgan Stanley’s role with respect to a Retirement Account, please visit Tax laws are complex and subject to change. When Morgan Stanley provides investment education, takes orders on an unsolicited basis or otherwise does not provide “investment advice”, Morgan Stanley will not be considered a “fiduciary” under ERISA and/or the Code. When Morgan Stanley Smith Barney LLC, its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors (collectively, “Morgan Stanley”) provide “investment advice” regarding a retirement or welfare benefit plan account, an individual retirement account or a Coverdell education savings account (“Retirement Account”), Morgan Stanley is a “fiduciary” as those terms are defined under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and/or the Internal Revenue Code of 1986 (the “Code”), as applicable. Investments and services offered through Morgan Stanley Smith Barney LLC. 2 Global Investment Manager Analysis (GIMA), December 2020. ![]()
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