If you’re counting on a big inheritance to pay off your debt or pump up your lifestyle in retirement, you may be kidding yourself.
According to a recent study from AARP, the median value of inheritances received by Baby Boomers has been around $48,000. That compares with a median inheritance for the previous generation of nearly $109,000–but, of course, not a lot of people got inheritances at all.
Of the Gen-Xers who have benefited from inheritances so far in their lives, the news is worse: Their median inheritance was just over $22,000.
It’s still true that the rich get richer. One quarter of all reported inheritances were larger than $100,000, and most of the people who received that cash were already among the wealthiest Americans.
Of course, one of the tax breaks enacted by this administration was the easing of the estate tax burden, and if somebody does leave you money you won’t have to pay taxes on much of it. In 2004 and 2005, the estate tax exclusion, or the amount that heirs get tax-free, rises to $1.5 million. If you think that’s good news, try to live just a little longer, because in 2006, the estate tax exclusion rises to $2 million.
And in 2009, current tax law says you’ll be able to pass down an estate of any size tax free.
But that doesn’t mean heirs won’t pay some tax.
If you are the beneficiary of an IRA, 401(k) or other retirement account, remember that those accounts are tax-deferred. The money gets socked away without being taxed, so you must pay any income taxes that are owed when you inherit the account.
Before you make a taxable mistake, get the help you need. For Web sites, try www.taxmama.com and www.irs.gov. You may also want to talk to an estate attorney or accountant.
