Understanding Who Should Be Beneficiary of Your IRA
How to Turn a Modest Tax-Deferred Account Into Millions For Your Family
(includes IRAs, 401(k)s, pensions, profit sharing and other qualified plans)
16. What are estate taxes and why should I care?
Estate taxes are different from, and in addition to, income taxes. When you die, your estate must pay estate taxes if its net value (including your tax-deferred accounts) is more than the amount exempt at that time. Currently in 2010 there is no federal estate tax, but it is scheduled to return in 2011 with a $1 million exemption and a 55% tax rate. Some states also have their own death or inheritance tax.
Estate taxes must be paid in cash, usually within nine months of your death. If money must be withdrawn from a tax-deferred account to pay the estate taxes, the result can be disastrous because income taxes must be paid on the money that is withdrawn to pay the estate taxes.