Newark, NJ asked in Estate Planning for New Jersey

Q: Are all investment accounts like 401Ks and IRAs subject to being taxed to people I've willed them to, even if I have

already paid taxes on them myself during retirement?

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1 Lawyer Answer
Kenneth V Zichi
Kenneth V Zichi
Answered
  • Estate Planning Lawyer
  • Fowlerville, MI

A: You have NOT paid tax on traditional IRAs or 401(k)s by definition. You don't pay tax on them until you remove the money from them which you have to start doing at a specific age if you haven't already begun to do so.

This 'withdrawal' requirement is because the government allows you to DEFER paying taxes, but they want you to pay them eventually. If YOU don't withdraw all the money before you die, you may list people as beneficiaries and then THEY have to pay the tax as they withdraw money from the account.

If you DON'T name a beneficiary YOUR ESTATE must withdraw ALL the money and distribute it according to your estate plan, but ALL the tax is due at that point instead of being spread out over time which can be done if you name beneficiaries.

If this doesn't make sense, I would urge you to consult with a local estate planning attorney and ask this question until you get a response that DOES make sense to you! This is not 'complicated' but it is 'detailed' and you need to understand what you're doing to insure your heirs (and you!) don't pay more tax than you need to.

--This answer is offered for informational purposes only and does not constitute legal advice or create an attorney/client relationship. I am licensed to practice in Michigan only. Please seek competent local legal help if you feel you need legal advice!

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