27 Apr If I don’t live in N.J., do I owe tax on this inheritance?

Q. Does the 10-year rule based on the CARES Act also apply to an inheritance that I received from a cousin who lives in New Jersey? I live in New Mexico and transferred the money to my own IRA. Would I owe separate New Jersey taxes when I withdraw money?
— Heir

A. Let’s get a few things straight first.

The CARES Act had nothing to do with the treatment of inherited IRAs. That was the SECURE Act.

We’re going to assume you were the designated beneficiary of your cousin’s IRA.

“The 10-year rule would apply as that is based on federal law and the recently proposed regulations issued by the U.S. Treasury, said Jason Marx, chair of the Taxation and Estate Planning and Elder Law Care and Special Needs Planning groups at Curcio Mirzaian Sirot in Roseland.

The 10-year rule says non-spouse beneficiaries must draw down the entire account by the end of the tenth year after the IRA owner died.

But not everyone interpreted the rule the same way.

Surprising many, the new proposed regulations would require certain beneficiaries to take annual distributions and empty the account by the end of the tenth year.

Given that this is still a moving target, you should work with a knowledgeable tax preparer to make sure you don’t run afoul of any rules changes.

On your other question, don’t worry — you won’t be taxed by two different states oin the distributions.

“As a resident of New Mexico, you should not have to pay income tax to the state of New Jersey on subsequent distributions you take from your IRA,” Marx said.

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This story was originally published on Aug. 27, 2022.

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