Question: If I die before the sale of my investment
property, will my heir be able to benefit from step-up in basis and pay fewer
taxes?
Step up in basis at death is not available for a Traditional
IRA’s assets, including any real estate it owns. Normally, if you die before the sale of
investment property, your heirs would get a step-up in basis, meaning they
could sell it immediately and pay no tax. If it is in an IRA, there is no
step-up in basis and they would pay taxes on the amounts distributed from the
IRA at their ordinary tax rate.
However, the goal for any retirement plan is to maximize its
value. If real estate assets achieve a
higher return than any other investment available, then that should be the investment
of choice.
Alternatively, this issue can be solved by converting the
Traditional IRA to a Roth IRA.
Step up basis is not a concern for Roth IRA owners who
invest their IRA in Real Estate because their taxes will have already been
paid, either in the year of contribution to the Roth or at the time of
conversion from Traditional to Roth. Plus, those benefits pass to the
beneficiaries of the account.
The recent relaxation of Roth conversion rules has led to a
surge of account holders electing to pre-pay their future income retirement
income tax by converting from Traditional to Roth IRAs. This legislation is
beneficial to investors who believe they will pay fewer taxes by converting
their IRA now than they will upon distributing their Traditional IRAs at
retirement age.
Like all investments, due diligence is required to decide
what will work best for your IRA and its investments. New Direction IRA can
help with the administration and bookkeeping of your IRA, and will ensure your
transactions and/or conversions are done according to IRS code.
Browse our website for more answers to the most common questions and concerns about self-directed IRAs. New Direction IRA is committed to providing you with the best education so you can self-direct your IRA successfully.
