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When do I pay taxes on beneficiary IRA withdrawals?

I would like to cash out an IRA account as a beneficiary. Does the money get taxed prior to receiving the check, or do I pay taxes on it at tax time?

IRAs, Taxes
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November 2016

You can elect to withhold 0%, 10%, or any amount greater than 10%. If you elect to withhold 0%, nothing will be taken out or taxed prior to the check being sent to you. If you withhold any other percentage, that amount will be withheld before the check is sent to you. Whenever you file your taxes, you will recognize the IRA cash out as ordinary income for 2016 (or whichever year you took the money out in), and you will owe the tax when you file your taxes. (If you withheld 10%, but owe more than that, you will pay the difference at this time. If you owe less than 10%, you will get that back in a refund, since you over-withheld.)

 As a side note, IRA beneficiary rules differ depending on whether or not you are a spousal beneficiary. Electing to take a lump sum from the IRA may or may not be in your best interest, depending on several factors. Here is a good resource on the subject from Charles Schwab. (There are plenty of other resources like this, a simple google search will yield solid results.) https://www.schwab.com/cms/P-1625576

November 2016