Dad passed away. I am co-owner on his bank account and beneficiary on his IRA. Can I just withdraw the money in bank account or does it have to be claimed as an inheritance? What is my tax liability as beneficiary of his IRA ($45,000.)
The bank account is not a problem and is not taxable income to you for Federal income tax purposes.
The IRA is another matter. You usually have three choices: (1) Withdraw the entire amount and pay tax on the entire $45,000 in the year of withdrawal, (2) withdraw the $45,000 over a five-year period and pay tax on the amount of the withdrawal in each year; this withdrawal does not have to be equal each year and (3) roll over the IRA into an inherited IRA and stretch out the tax over your lifetime.
You should work with the trustee of the plan in making your choice. A WARNING: If you choose method (3), there are very specific rules as to how the IRA is named and how it is treated. Be sure the trustee is VERY familiar with these rules as the IRS is very unforgiving if you don't do it just right and will treat the IRA as having been distributed to you if it is not handled correctly. I cannot stress this enough.
The bank account is not a problem and is not taxable income to you for Federal income tax purposes.
The IRA is another matter. You usually have three choices: (1) Withdraw the entire amount and pay tax on the entire $45,000 in the year of withdrawal, (2) withdraw the $45,000 over a five-year period and pay tax on the amount of the withdrawal in each year; this withdrawal does not have to be equal each year and (3) roll over the IRA into an inherited IRA and stretch out the tax over your lifetime.
You should work with the trustee of the plan in making your choice. A WARNING: If you choose method (3), there are very specific rules as to how the IRA is named and how it is treated. Be sure the trustee is VERY familiar with these rules as the IRS is very unforgiving if you don't do it just right and will treat the IRA as having been distributed to you if it is not handled correctly. I cannot stress this enough.
It appears most custodians know how to correctly title an Inherited IRA these days.
The title must be correct in any case, whichever option is chosen.
The 5-year rule is an option only if the deceased died prior to his Required Beginning Date for RMDs, April 1 of the year following the year he reached, or would have reached, age 70½.
Note that option 3 is not a rollover. It must be a nonreportable trustee-to-trustee transfer. A trustee-to-trustee transfer to an inherited IRA is also necessary for option 2.