A DECEDENT’S Individual Retirement Account (IRA) is subject to both estate tax and income tax when distributions are paid to his estate or to the beneficiaries of his IRA. A special income tax deduction under Internal Revenue Code[1]� (IRC) �691(c) is available when the IRA death benefits are subject to both taxes.
An IRA account is reported on Schedule I of the decedent’s estate tax return and is valued at the fair market value of the account’s assets as of the date of death. In 2002, taxable estates in excess of $3 million are taxed at the top estate tax bracket of 50 percent. Once the money is withdrawn from the account, such amount is taxed to the estate or IRA beneficiary(s) as income in respect of a decedent (IRD) either on the estate’s income tax return(s) or the beneficiary’s personal return(s). In 2002, the top federal income tax rate for estates is 38.6 percent for all income in excess of $8,900. In 2002, the top New York State income tax rate (not including local income taxes) is 6.875 percent.
