11 Jul I inherited two IRAs. How much should I withhold for taxes?

Q. I have inherited two traditional IRAs from my mother who passed away. Mom lived in New York City and I live in New Jersey. Both banks are nationally known entities. How do I determine how much money to withhold in order to cash in the IRAs?
— Tax concerned

A. Slow down for a moment.

You’re asking about cashing out the IRAs. If you’re the beneficiary, you don’t have to take it all out at once. You may want to sit down with a financial advisor who can help you determine the best long-term strategy for this money before you take any action.

All retirement income, whether from a pension or IRA, are taxed by the state in which you live, not the source, said Michael Karu, a certified public accountant with Levine, Jacobs & Co. in Livingston.

“So it does not matter where your mother resided,” he said. “It only matters where you reside.”

Inherited IRAs have some rules you should understand.

First, if you’re keeping the account open, you cannot make additional contributions into the inherited IRA, Karu said

“Assuming you are the designated beneficiary, you can withdraw funds without incurring penalties, regardless of your age,” he said. “Periodic withdrawals are allowed and may be beneficial depending on the beneficiary’s tax bracket.”

The Inherited IRA must be fully liquidated by the end of the tenth year following the death of the IRA’s owner

As far as how much income tax to withhold, you need to determine your prior year’s tax bracket, Karu said, because any additional income will be added to your existing income.

Assuming you are in the 24% tax bracket for federal purposes, withhold 24%, he said.

“New Jersey uses a progressive tax system. Again, any additional income is added to your existing income,” he said. “Assuming your income level has you subject to tax at the 6.37% level, then withhold accordingly.”

As always, you should consult with a qualified tax professional for assistance.

Email your questions to Ask@NJMoneyHelp.com.

This story was originally published in July 2025.

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.