29 Jun We inherited a retirement account. Is the inheritance tax due?

Q. My sister and I were named beneficiaries on my aunt’s Thrift Savings Plan, which she had through her employment with the federal government. Is there an inheritance tax involved?
— Heirs

A. We’re sorry for your loss.

There are a few things to unpack here.

Certain retirement benefits available to federal employees are exempt from the New Jersey inheritance tax, said Samantha Rocco, a tax and estate attorney with Einhorn, Barbarito, Frost & Botwinick in Denville.

Specifically, New Jersey inheritance tax is not imposed on the proceeds of any pension, annuity, retirement allowance, return of contributions or benefit payable by the United States government under the Civil Service Retirement Act, Retired Serviceman’s Family Protection Plan and the Survivor Benefit Plan so long as such benefits are payable to a beneficiary other than the decedent’s estate or the executor or administrator of the decedent’s estate, she said.

“All other pensions, annuities, retirement allowances or returns of contributions payable by the United States to a beneficiary are subject to the New Jersey inheritance tax,” she said.

“That being said, Thrift Savings Plans, which were established by Congress under the Federal Employees’ Retirement Systems Act of 1986 and extended under the National Defense Authorization Act for Fiscal Year 2001, may be subject to the New Jersey inheritance tax when a niece, nephew, or other Class D beneficiary is named as the beneficiary of such account,” she said. “However, the Division has not published official guidance on this particular topic.”

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This story was originally published on June 29, 2023.

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