NJ Inheritence tax on IRA and Inherited IRA for an ex-spouse | Ed Slott and Company, LLC

NJ Inheritence tax on IRA and Inherited IRA for an ex-spouse

Interesting case....62 yr old client died and had voluntarily named his ex-spouse (57) as the beneficiary of his Inherited IRA from his mother ($450k) and his other IRA of $200k that was received under a QDRO from the same ex-spouse.

Assuming these are the only assets she gets, will she owe NJ inheritance tax on the full $650,000? In addition, since she'd probably have to pull the $100k of taxes from the accounts it seems as though she would also owe income tax on that amount as well. Especially with regard to the $200k that she had originally given to the ex and is now getting back, the inheritance tax seems particularly unfair.

Am I missing something?

It is unusual for a taxpayer that transfers their IRA incident to divorce to inherit that IRA back when the ex passes. That said, she did inherit it and I highly doubt that there is any exception in the NJ tax regime to treat that IRA differently than any other asset she inherits as a non spouse. So she would also owe income taxes on any amount distributed to pay the NJ inheritance tax for a non spouse beneficiary, as you expected.

I don't see anything unfair about this.  The ex-wife is not getting *her* money back.  The money transferred to the client's IRA under the QDRO was a division of marital property and the money in this IRA does not carry any status of it ever having been in the ex-wife's retirement account.  With regard to being a beneficiary of an IRA, an ex-wife is a non-spouse beneficiary no different than any other non-spouse beneficiary.

Thanks for the confirmation.


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