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I recently inherited a non-spousal IRA. The 10-year rule applies, I understand that.

The cost basis on the broker statement for the mutual funds is from 20 years ago when they were purchased. If this were not an IRA, this would be a problem, I wouldn't want to pay capital gain taxes on the funds before they were mine.

But, for an IRA, does it matter? I will only be taxed when I withdraw funds, and it will be taxed as income, not capital gains.

I would prefer that the cost basis be reset to when the funds became mine so I can more easily see how they are performing. But if there are no tax implications, I can live with it.

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The cost basis for inherited assets is typically the value at the time of inheritance, so yes the basis would be stepped up to the value at the time they became yours.

But you are also correct that for an IRA it doesn't matter. You will be taxed on distributions, not just the capital gains. Also, if the IRA was not your spouse's (which I'm assuming it what you mean by "non-spousal IRA"), then you must start taking distributions (without penalty) even before you're 70.5. Check with a financial advisor to determine when (and how much) your distribution is required.

If it's a large IRA, and you don't want to cash it all out at once, I would find a local financial advisor who can help you manage the assets and tax implications.

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  • Same year as the gifter’s dead? Are you sure? What if he dies late on New Years Eve??
    – Aganju
    Feb 8, 2022 at 18:01
  • @Aganju "Generally, the designated beneficiary is determined on September 30 of the calendar year following the calendar year of the IRA owner's death" - pub 590-B
    – littleadv
    Feb 8, 2022 at 18:17
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    @Aganju Not my area of expertise, but from a quick look at the forms, if the owner dies after April 1 the required distribution is not required until the following year. I think the principle is that the distribution requirement is the same as it would be for the gifter, or accelerated if they were not yet 70.5.
    – D Stanley
    Feb 8, 2022 at 18:17
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    The rules have change in the last few years, I believe that this portion of 590B applies to me: The 10-year rule requires the IRA beneficiaries who are not taking life expectancy payments to withdraw the entire balance of the IRA by December 31 of the year containing the 10th anniversary of the owner’s death. For example, if the owner died in 2020, the beneficiary would have to fully distribute the plan by December 31, 2030. The beneficiary is allowed, but not required, to take distributions prior to that date. In any case, I plan on taking out some each year for 2-3 years, and closing it.
    – Mattman944
    Feb 8, 2022 at 20:28
  • I've removed the specifics since it wasn't part of the original question.
    – D Stanley
    Feb 9, 2022 at 14:02

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