Will Your Kids Inherit a Tax Bomb From You?

Will Your Kids Inherit a Tax Bomb From You?
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Mike Valles
Updated:
You can have good intentions with your estate to pass it on to your heirs. You are sure that they will enjoy the benefits of it and have informed them of it. It is possible, though, that if you have not prepared to get around inheritance taxes, they may not receive nearly as much as you hoped. Enabling your beneficiaries to avoid the tax on inherited money is a part of good estate planning—and you can be sure they will appreciate it.

No Federal Inheritance Tax

The good news is that the federal government does not charge any inheritance tax—but six states do. They are Kentucky, Nebraska, Maryland, Pennsylvania, Iowa, and New Jersey. Each state has an exemption amount, and some people are exempt from the taxes, says PersonalCapital.

Capital Gains Tax on Inherited Property

You will pay taxes, in some cases, on both federal and state taxes for capital gains. This tax is only due after the property sells and there is profit.
  • Estate Taxes
The IRS says federal estate taxes are only due for any amounts above $12,060,000 in 2022. The estate tax exemption includes what the IRS calls the “gross estate,” which means cash, insurance, real estate, securities, trusts, business interests, annuities, and other assets.
States have a much lower threshold, so you should check with your state to determine the level. There are also several states with inheritance tax and estate tax.
  • 401(k)s
Standard financial advice today suggests putting as much money as possible into a 401(k) retirement account. If you have followed this advice, you likely will have a good amount of money stashed away for the future. It is especially true if your employer offered matching contributions, and if your spouse did the same. If you started early and maxed out contributions throughout the years, you could easily have more than $1 million tucked away.
Mike Valles
Mike Valles
Author
Mike Valles has been a freelance writer for many years and focuses on personal finance articles. He writes articles and blog posts for companies and lenders of all sizes and seeks to provide quality information that is up-to-date and easy to understand.
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