So both of my kids (2 and 4 yo) recently received inherited IRAs. They have to take some distributions every year. Here are some questions I'm hoping someone can help me answer.
1. Taxes -- the RMDs will be around $2K. How is this taxed? I assume it will be taxed at the child's own income tax rate. The have no other income, but it seems like they will probably still owe some tax on it. Do I have to file separate returns for them? Also as far as actually paying the tax, can I pay it for them, or does it have to come from them directly (e.g. a custodial account that I set up for them). If I pay the tax for them is that considered a gift and does it eat into the 15K that I can otherwise give them.
2. Let's say that I put all of the RMDs each year into an custodial UGMA account which is invested 100% in Vanguard total market. How are the dividends in that account taxed. My dividend rate or theirs?
3. I do not currently have any custodial accounts of any kind set up in their names. Let's assume that I don't set one up. When I get the check for the RMD, can I deposit it in my checking account and just use it for their expenses (including taxes that are owed) or do I need to set up some sort of account in each of their names in which I can deposit the check (apparently at the brokerages at which these accounts are held, the only way I can get the RMD is via check in the mail).
1. Taxes -- the RMDs will be around $2K. How is this taxed? I assume it will be taxed at the child's own income tax rate. The have no other income, but it seems like they will probably still owe some tax on it. Do I have to file separate returns for them? Also as far as actually paying the tax, can I pay it for them, or does it have to come from them directly (e.g. a custodial account that I set up for them). If I pay the tax for them is that considered a gift and does it eat into the 15K that I can otherwise give them.
2. Let's say that I put all of the RMDs each year into an custodial UGMA account which is invested 100% in Vanguard total market. How are the dividends in that account taxed. My dividend rate or theirs?
3. I do not currently have any custodial accounts of any kind set up in their names. Let's assume that I don't set one up. When I get the check for the RMD, can I deposit it in my checking account and just use it for their expenses (including taxes that are owed) or do I need to set up some sort of account in each of their names in which I can deposit the check (apparently at the brokerages at which these accounts are held, the only way I can get the RMD is via check in the mail).
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