Inherited income, student loans and US of A

[onda]

Hello:

I will inherit about 150,000 gross between 2007 and 2008. I have
student loans of 125,000 at 9% that have been on my back since 1995.
i want to pay these loans off already.

My question is, how much cash should I keep on hand to pay the monster
income tax bill that I will likely receive? Most of my inheritance
will come from mutual funds, life insurance, a house sale and one
inherited IRA that I plan to liquidate.

If I get overwhelmed tax-wise, will I just be trading a student loan
at 9% for a tax bill at 7%?

What's the best way to go? If I don't sell the mutual fund until 2008,
will that make the wounds less severe?

Thanks!

[Arthur Kamlet]

In article <7f6a9e71-aebb-49a7...@e23g2000prf.googlegroups.com>,

Of the items mentioned, only the IRA will be taxed and only when you
take distributions, which you do not have to do. Better to carry
student loan at 9% than to pay 15% or more federal income tax on the IRA.

The earnings or gain for the other items since date of death
will also be income.
--

ArtKamlet at a o l dot c o m Columbus OH K2PZH

[ed]

On Dec 2, 6:41 pm, kam...@panix.com (Arthur Kamlet) wrote:
> In article <7f6a9e71-aebb-49a7-91d4-f09058145...@e23g2000prf.googlegroups.com>,

> ArtKamlet at a o l dot c o m Columbus OH K2PZH- Hide quoted text -
>
> - Show quoted text -

Art said "better to carry student loan at 9% than to pay 15% or
more federal income tax on IRA". But the 15% is a one time tax
whereas the 9% is an annual interest rate.

ed

[kastnna]

On Dec 2, 6:26 pm, onda <tro...@hotmail.com> wrote:
> Hello:
>
> I will inherit about 150,000 gross between 2007 and 2008. I have
> student loans of 125,000 at 9% that have been on my back since 1995.
> i want to pay these loans off already.

At 9% you almost certainly should unless you have more debt somewhere
else we don't know about.

> My question is, how much cash should I keep on hand to pay the monster
> income tax bill that I will likely receive? Most of my inheritance
> will come from mutual funds, life insurance, a house sale and one
> inherited IRA that I plan to liquidate.

You shouldn't have a monster income tax bill. The IRA will be taxable
at your marginal tax rate when you withdraw it (which you are going to
be required to begin doing anyway). The rest receives a step-up in
basis. Barring that, any gains in the investments AFTER you inherit
them may be taxable.

> If I get overwhelmed tax-wise, will I just be trading a student loan
> at 9% for a tax bill at 7%?

That won't likely be the case but even if you were trading a 9% loan
for a 7% loan, why is that a bad thing? That's exactly why some people
refinance their mortgages.

> What's the best way to go? If I don't sell the mutual fund until 2008,
> will that make the wounds less severe?

No, there are no wounds. Holding on to the fund also adds the risk
that the fund decreases in value (or increases, of course).

P.S. - Not my business, but how much were the loans originally if you
still own $125k after 12 years?