What tax is due if I use Dad’s IRA to pay for funeral expenses?
Q. My father is going to be 100 years old. He has no pre-death indictments except a mausoleum plot with my mother. The only money he has is an IRA that I will have to use to pay for the arrangements. What are the tax implications?
— Try to help
A. Happy birthday to your father.
An IRA, unless it is a Roth IRA, incurs federal income tax when funds are withdrawn.
Your father is likely in a lower tax bracket than the beneficiaries and may also have deductions that offset the income, said Catherine Romania, estate planning lawyer at Witman Stadtmauer in Florham Park.
Therefore, she says, the tax consequences can be mitigated if your father withdraws additional amounts on top of your father’s required annual minimum distribution and uses those amounts to prepay funeral expenses with the funeral home or set aside those monies to be used for his funeral,” she said.
If your father doesn’t prepay his funeral or having set aside funds to be used for payment, when the designated IRA beneficiary draws funds from the IRA to pay for those expenses, income will be realized, triggering a tax, Romania said. Funeral expenses will not be considered a income tax deduction, she says.
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Karin Price Mueller writes the Bamboos column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. To find NJMoneyHelp on Facebook. Register for NJMoneyHelp.comit is weekly e-newsletter.