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HomenewsDo Retirement Account Inheritances Subject Class C and D Heirs to Taxation?

Do Retirement Account Inheritances Subject Class C and D Heirs to Taxation?

Inheritance is taxable in New Jersey, A.

The tax is calculated according to the beneficiary’s relationship to the decedent.

Beneficiaries in the top tax bracket are not subject to the inheritance tax. These include the surviving spouse, children, and grandchildren of the deceased person.

Class C beneficiaries include a sibling of the decedent, the spouse or surviving spouse of a child of the decedent, and a civil union partner.

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Class E comprises organizations that are tax-exempt under federal law (such as registered charities), as well as schools, hospitals, research labs, and government agencies (including the State of New Jersey and its political subdivisions).

Anyone who is not a direct A, C, or E relative is considered a Class D beneficiary.

According to Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park, while certain assets bequeathed directly to Class C or Class D beneficiaries are exempt from the New Jersey inheritance tax, a retirement account does not have a blanket exemption.

Therefore, she explained, recipients in Classes C and D might have to pay inheritance tax if they get such assets.

To the extent that the proceeds do not exceed ,000, or the first ,000 of the such amount received, the beneficiaries in Class C will not be subject to taxation, as stated by Romania.
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If a Class D beneficiary receives a bequest that is less than 0 in its entirety, the entire amount is not subject to taxation.
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Further, she clarified that “neither Class C nor Class D beneficiaries are subject to taxation on distributions from life insurance policies paid directly to the beneficiary or from pensions, annuities, or retirement accounts under a teacher’s retirement plan, police or fireman’s retirement plan, or other government service retirement plan.”

All beneficiaries of a retirement account, unless the account is a Roth account, are responsible for paying income tax upon withdrawing the funds, as mentioned by Romania.


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