Understanding Who Should Be Beneficiary of Your IRA
How to Turn a Modest Inheritance Into Millions for Your Family
16. What are estate taxes and why should I care?
Estate taxes are different from, and in addition to, income taxes. When you die, your estate must pay estate taxes if its net value (including your tax-deferred accounts) is more than the amount exempt at that time. Under current law, the federal exemption for 2009 is $3.5 million; every dollar over this amount is taxed at 45%.
Also, estate taxes must be paid in cash, usually within nine months of your death. If money must be withdrawn from a tax-deferred account to pay the estate taxes, the result can be disastrous because income taxes must be paid on the money that is withdrawn to pay the estate taxes.