Ryan Johnson, BFA™’s Post

View profile for Ryan Johnson, BFA™, graphic

Financial Planner for people in their 30s & 40s.

Have you considered using an inheritance to buy a house? I had the chance to help a client think through this toward the end of last year. They were building new and needed to have their down payment ready at the beginning of this year for an estimated move-in of Fall 2024. Situations like this can appear to be relatively straightforward. Take the money you inherited, and then use what you need for the down payment. But the reality is that there can be unexpected tax consequences for certain types of inheritances. In this client's case, they had inherited a Traditional IRA. That means that the money in the account hadn't been taxed yet....and yes, that it would be taxed when it is taken out...even by the beneficiary! The trick here was that it would only be taxed when it is actually taken out of the account, not the moment they inherited it. But instead of waiting to take it all out when they needed it (January 2024), we explored some different alternatives. It turned out that in their case, due in part to certain tax credits and the marginal tax bracket they were in, they could save around $2k in taxes by taking SOME of the money out in 2023, and the rest in 2024, splitting the "income" from the IRA over multiple years. In the grand scheme, $2k was a small percentage of the money they inherited. But by itself, it is still a nice chunk of change! Even situations that seem like they don't need much thought can mean thousands of dollars in different outcomes. #taxplanning #inheritance #IRAstrategy

To view or add a comment, sign in

Explore topics