‘I have questions regarding some stuff I inherited’: I have substantial assets from an inheritance but worry about being taxed twice. How can I maximize my inherited savings without facing double taxation?

Hi Money Minder,

I’ve got some good savings under my belt and I’m feeling pretty good about my financial situation right now.

Here are the basics: I’m 26, living at home (so no rent or groceries to worry about).

I’ve got around $28k in my high-yield savings account and $13k in my Roth IRA, with 10-20% of each paycheck going into the Roth and the rest staying in my high-yield account.

I’ve kept my student loans to a minimum and my car payments are almost done. My credit card debt is less than $2k and I don’t have any big purchases planned in the near future.

I’m thinking about saving up for a down payment on a house in the next few years, so I can stop paying rent and start paying a mortgage instead.

I’ve got some questions about some money I inherited. I’ve got a simple IRA with $3k in it, and I know I’ll have to start taking money out of it soon.

I’m not sure how the taxes work if I pull money out, but I’m wondering if I can avoid being taxed twice by putting that money into my Roth IRA.

I also inherited a savings account with about $83k in it through a trust.

I want to make sure I’m not getting double-taxed on anything I pull out of these accounts. Ideally, I’d like to use the money from the inherited savings to max out my Roth IRA every year, and then invest the rest.

I’m not too keen on keeping the inherited account since it’s not earning much interest.

The whole tax and withdrawal situation with the inherited money is throwing me for a loop.

Any advice you can offer would be greatly appreciated!

Thanks, Future Financially Secure

Response from THE MONEY MINDER:

Hello There,

Congratulations on taking the initiative to manage your finances and plan for your future. It sounds like you’re in a great position with your high yield savings, Roth IRA, and overall low debt. Your approach to potentially buying property in the next few years is a practical one.

Regarding your inherited IRA and savings account, it’s wise to consider the tax implications and how best to utilize these assets. When it comes to the inherited IRA, you are correct that you will need to take required minimum distributions over a certain period. These distributions will be subject to income tax, but they will not be double-taxed if you transfer them to your Roth IRA. However, it may be beneficial to speak with a financial advisor or tax professional to determine the most tax-efficient strategy for these distributions.

For your inherited savings account, you can strategically withdraw funds to maximize your Roth IRA contributions each year. It’s important to be mindful of any tax implications when withdrawing from this account and to consider your overall investment goals. If the inherited account is not yielding substantial returns, exploring alternative investment options like personal investment accounts or CDs may be worth considering.

In terms of taxes and required withdrawals on the inherited assets, seeking guidance from a financial advisor who can provide personalized advice based on your specific situation is recommended. They can help you navigate the tax implications and create a plan that aligns with your financial goals.

All the best from THE MONEY MINDER as you continue to make sound financial decisions and plan for your future.