Does an estate IRA rollover get a basis step up?

Step-Up in Basis for Inherited IRAs

When it comes to inherited Individual Retirement Accounts (IRAs), the tax treatment of these accounts is governed by specific rules that apply to inherited property and retirement accounts. Here's what you need to know about the step-up in basis and rollovers for inherited IRAs:

Step-Up in Basis:

- Generally, a step-up in basis applies to inherited property, which means the basis of the property is adjusted to its fair market value (FMV) at the date of the decedent's death.

- For traditional IRAs, the step-up in basis rule does not apply because these accounts contain pre-tax contributions and the earnings are tax-deferred. The beneficiary inherits the IRA with the same basis as the decedent had.

- For Roth IRAs, contributions are made with after-tax dollars, and the earnings grow tax-free. Since taxes have already been paid on the contributions, there is no step-up in basis because the basis is already the amount of the contribution.

Rollovers of Inherited IRAs:

- Non-spouse beneficiaries cannot roll over inherited IRAs into their own IRAs. Instead, they may transfer the assets into an Inherited IRA (also known as a Beneficiary IRA) while maintaining the tax-deferred status.

- Spouse beneficiaries have the option to roll over the inherited IRA into their own IRA or to an Inherited IRA. The tax treatment will depend on the type of IRA (traditional or Roth) and the timing of distributions.

Estate as Beneficiary:

- If an estate is named as the beneficiary of an IRA, the IRA does not get a step-up in basis. Instead, the IRA's value is included in the decedent's estate for estate tax purposes, if applicable.

- The estate must adhere to the required minimum distribution rules based on the decedent's age and life expectancy at the time of death.

Conclusion:

In summary, there is no step-up in basis for inherited IRAs when they are rolled over, whether by an individual beneficiary or by the estate. The tax treatment of distributions from an inherited IRA will depend on the type of IRA and the decedent's age and life expectancy.

Please note that the information provided here is based on general principles and may not account for specific changes in tax law or regulations that could affect the treatment of inherited IRAs. For the most current and detailed information, one would typically review the latest Internal Revenue Bulletins or other IRS guidance. However, as per the provided information chunks, there is no direct link to a specific bulletin addressing the step-up in basis for inherited IRAs.

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Sources:

Internal Revenue Bulletin: 2023-38 2023-09-17

Internal Revenue Bulletin: 2023-31 2023-07-30

Internal Revenue Bulletin: 2023-23 2023-06-04

Internal Revenue Bulletin: 2022-11 2022-03-13

Internal Revenue Bulletin: 2011-35 2011-08-28

Internal Revenue Bulletin: 2003-33 2003-08-17