where is the best place to put money from an inherited gas well?

[katcandu2]

I inherited a gas well which was opened in late 2022. I receive occasional checks from the company but they don't take out any taxes. I have been sending money quarterly to the IRS to cover taxes but wonder where I should be putting that money to best shelter it? I don't mind paying taxes but don't want to have to pay more than required.

[dev145]

Hello  katcandu2,

It is good that you are making estimated taxes on this income. This will avoid balance due when you file your tax return. As for investing the money, we cannot help. There are so many options, stocks, mutual funds, crypto, real estate to name few. We can help with tax consequences if you know where you want to invest but this falls under tax planning. You might want to reach out to financial planner to discuss.

Thanks for participating in TurboTax's Ask the Expert event today. I hope this information was helpful!

[synaps]

Thanks for the information! I'm trying to understand the best way to handle inherited assets like a gas well and minimize taxes. I know you can't give investment advice, but could you clarify a few things for me?

I've heard that you can't directly transfer the gas well into a Roth IRA. Is that correct? If so, what are some strategies to leverage its value to fund my Roth IRA within the contribution limits?

I understand selling the well and contributing the cash is an option. Are there other possibilities, such as using the income generated from the well or even taking out a loan against its value to fund contributions?

Could you also address these points:

Are there any tax implications or benefits to consider with each strategy?
Would the earnings and distributions within the Roth IRA be tax-free?
I'm not a tax expert, so any clarification and ideas you can provide would be greatly appreciated!

[dev145]

I can confirm that you can purchase interest in oil & gas via self directed IRA/ROTH IRA. I was not able to find anything where it says you are allowed to transfer into ROTH.

Let me answer easy question first. Yes, ROTH earning grows tax free and any withdrawal is tax and penalty free if you qualify. 

https://www.irs.gov/taxtopics/tc557

As for taking out a loan against the your interest in well will depend on few things. First and main, interest rate. At what rate you will get this loan? Will your investment in ROTH grow at least what you will pay in interest? Also are you eligible to contribute to ROTH? Is income from gas will be enough to cover loan payments. 

I would not advise to sell the interest especially if you are getting nice income. Easiest and best option is to keep the interest in gas well and use income to fund your ROTH. Here is a link on who can contribute to ROTH.

Please note that passive earning from royalties is not earned income so if you do not have earned income form other activities, you cannot contribute to ROTH. If you have a working interest in a gas well, then you could use earning to contribute to ROTH.

https://www.irs.gov/retirement-plans/traditional-and-roth-iras

Thanks for participating in TurboTax's Ask the Expert event today. I hope this information was helpful!