This year in the United States, estate taxes were repealed. However, unless Congress acts to change the current plan, in 2011 the estate tax returns at its highest rate of fifty-five percent. The good news is that, according to the IRS, only about two percent of Americans will ever have to worry about estate taxes.
Taxes on smaller estates are still possible, depending on what types of accounts held the money. The terms used by banks to differentiate between the two are qualified and non-qualified. To understand the difference between the two, remember non as not. Qualified accounts are taxable. Non-qualified accounts are not taxable.
Retirement Accounts
A retirement account such as a 401k usually gets deducted from paychecks pre-tax, which makes it a qualified account. So, when an individual inherits all or part of a retirement account, he has to pay taxes on it. Similar to large prize payouts, he has a choice: take a lump sum payment and get the taxes over with, or get smaller payments – and tax bills – over his life span.
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