08 Apr What tax is due if I use dad’s IRA to pay funeral expenses?
Q. My dad is turning 100. He does not have any pre-death arraignments except a mausoleum plot with my mom. The only money he has is an IRA that I will have to use to pay for the arrangements. What are the tax implications?
— Trying to help
A. Happy birthday to your father.
An IRA, unless it is a Roth IRA, incurs a federal income tax upon the withdrawal of funds.
Your father is likely in a lower tax bracket than the beneficiaries and may also have deductions which offset income, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.
Therefore, she said, the tax consequences may be mitigated by having your father withdraw additional amounts over and above your father’s annual Required Minimum Distribution and use such amounts to prepay his funeral expenses with the funeral home or to set aside such amounts to use for his funeral,” she said.
If your father does not prepay his funeral or have funds set aside to use for payment, when the named beneficiary of the IRA takes funds from the IRA to pay such the expenses, income will be realized, triggering a tax, Romania said. The funeral expenses will not be considered an income tax deduction, she said.
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This story was originally published on April 8, 2022.
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