Advice on quick actions

It sounds like your family member is navigating a significant inheritance and wants to ensure they take smart, proactive steps before the year ends. Here’s a tailored breakdown of the key considerations and likely actions to minimize tax burdens, maximize benefits, and avoid pitfalls. However, this advice should be refined further with input from a CPA or tax attorney.

1. IRA Accounts:

Inherited IRA RMDs (Required Minimum Distributions):
- If the IRA owner passed after 2019, the SECURE Act requires that most non-spouse beneficiaries empty the inherited IRA within 10 years. This rule applies regardless of age, and there are no annual RMDs required within this period unless the decedent was already taking RMDs.
- If the father was taking RMDs, beneficiaries must continue RMDs for 2024 and beyond. Ensure the 2024 RMD is calculated and withdrawn by 12/31/2024 to avoid a penalty.
Consider Partial Withdrawals:
- To minimize the tax hit from a lump-sum withdrawal, consider taking smaller distributions over the 10-year period, factoring in your current income and tax brackets. This could reduce the chance of being pushed into a higher tax bracket.

2. CDs and Small IRA ($40,000):

Tax Implications on CDs:
- CDs accrue interest, which is typically taxed as ordinary income. If these CDs mature soon, redeeming them before year-end could increase taxable income.
- Consider deferring redemption until 2025 if this year's income is already high, especially if you’ll be in a lower tax bracket next year.
Small IRA Strategy:
- Treat the $40,000 IRA similarly to the larger IRA: decide whether to withdraw partially now or defer until later in the 10-year window to spread the tax impact.

3. Checking Account ($190,000):

Tax Concerns:
- This money is likely not taxable if the account was jointly owned or passed via rights of survivorship. Verify whether the account has a “step-up basis” or any potential tax implications with the CPA.
- Action: It may be best to leave this untouched for now unless there’s an immediate need for funds.

4. Property Sales:

House ($250,000):
- A step-up basis likely applies to the property, meaning its tax basis resets to the fair market value as of the decedent's date of death. If sold soon, capital gains taxes will generally apply only to appreciation beyond this stepped-up value.
- Consider waiting until 2025 if 2024 already has significant income, especially if selling will result in capital gains.
Land ($100,000):
- Similar rules apply to the land. Determine its stepped-up value with an appraiser. If the market is favorable and a sale won’t push the family into a higher tax bracket, a 2024 sale may make sense. Otherwise, defer to 2025.

5. Debt and Financial Planning:

Paying Off Debt:
- It may be tempting to use inheritance funds to pay off $110,000 in debt, but consider:
- Paying off high-interest credit cards or loans first.
- Leaving funds in investments to grow rather than paying off low-interest debt, depending on priorities.

6. Overall Tax-Planning Steps by Year-End:

Estimate 2024 Income: Add up W-2 income, expected IRA withdrawals, CD interest, and any property sales proceeds. If income is unusually high, defer some transactions to 2025.
Charitable Donations: If philanthropy is important, consider donating part of the inheritance or taking a Qualified Charitable Distribution (QCD) from the IRA (if over age 70½) to reduce taxable income.
Max Out Tax-Advantaged Accounts: Depending on employment, maximize 401(k) or HSA contributions to lower taxable income.

Additional Considerations:

Professional Advice: A reputable CPA or tax attorney is essential for navigating complex inheritance rules. Provide them with documentation, including death certificates, IRA details, and asset valuations.
Estate Tax Thresholds: At the federal level, the estate tax exemption is $12.92 million per individual in 2024. State-level estate or inheritance taxes may vary, so verify if your state has additional rules.

Summary of Actions:

Review RMD requirements for inherited IRAs and withdraw by 12/31/2024 if needed.
Defer CD redemptions and property sales to 2025 if 2024 income is already high.
Use the stepped-up basis for property valuation to minimize taxable gains.
Consult a CPA or tax attorney to fine-tune withdrawal strategies and asset management.
Pay down high-interest debt but consider maintaining liquidity for emergencies or investments.

This approach balances tax efficiency with long-term financial security while minimizing surprises.