06 Feb I’m a teacher. Is my retirement account subject to the inheritance tax?

Q. My 403(b) account was set up while teaching in a New Jersey public school. Understanding that this was to be a retirement fund, can you confirm that it will not be subject to the New Jersey inheritance tax when I die?
— Former teacher

A. It’s important to understand how your different assets might be taxed upon your death.

What happens for your estate will depend on the details.

A 403(b) account is a retirement account established by an employee as part of plans offered by public school employers and certain charitable organization employers, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

It’s similar to the 401(k) plan offered by private sector employers.

“A 403(b) plan allows a public school teacher to defer salary into an individual invested tax deferred plan and such deferred amount is not taxed until distributed; unless it is a Roth account which is taxed upon contribution instead of distribution,” she said. “A 403(b) plan is a form of defined contribution plan. In contrast, a pension is a form of defined benefit plan.”

New Jersey specifically exempts from the inheritance tax at death all payments from the Teachers’ Pension and Annuity Fund, the Public Employees’ Retirement System of New Jersey and the Police and Firemen’s Retirement System of New Jersey, Romania said.

It further exempts from the inheritance tax benefit plans under the state, county and municipal systems that have a similar tax exemption clause, she said.

“However, TIAA-CREF — Teachers Insurance and Annuity Association of America and College, now known as TIAA — is specifically not exempt from inheritance tax,” Romania said. “Also specifically not exempt is a teacher’s 403(b) account.”

Given this, it would be important for your executor and/or beneficiary to confirm if any payments received on your death are from the Teachers’ Pension and Annuity Fund, which would be exempt, versus a defined contribution plan, which would not be exempt, Romania said.

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This story was originally published on Feb. 6, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.