Reply To: Please post an article on almost-repeal of the Stretch IRA

Home Fairmark Forum Retirement Savings and Benefits Please post an article on almost-repeal of the Stretch IRA Reply To: Please post an article on almost-repeal of the Stretch IRA

#3584
neurodoc1@gmail.com
Participant

Alan, thank you for your answer to my question above about Roth and non-Roth assets in a 401(k) upon the death of principle. Too get it all clear, especially the tax treatment of real estate going forward in the hands of a non-spouse wife,
may I continue?

While the owner lived and held real estate in a Roth 401(k) account, he could mortgage the property and later sell it subject to that mortgage without paying UBIT, UDFI, or taxes of any sort on any gain over his original acquisition price. But if he died and the property went to a non-spouse beneficiary then? The death itself wouldn’t trigger any non-estate taxes, but the heir would be responsible for taxes going forward, no matter that the asset had been held as a Roth and will now be within a Roth inherited IRA? If the heir can pay off the mortgage the mortgage in full and wait >1 year to sell the property, then he/she will avoid UDFI on the gain? (I asked about “stepped up basis” because it seemed perverse that there would have been no taxes on any gain in property value during the plan owner’s life, but there would be big taxes if the property were subject to a mortgage and the gain in value were realized after it went to the non-spouse heir.)

Would there be a much different result if upon the owner’s death, the property went to the spouse who had her own account in the same solo 401(k)? If the property had to go into a Roth IRA account [preserve the Roth!] before it transferred into the spouse’s 401(k) account, would any taxes be triggered on what had been and was to be a Roth asset? The spouse wouldn’t just figuratively step into the original owner’s shoes?