20 Nov Mom died. Do we owe state tax on her 401(k)?

Q. I’m preparing to liquidate my mother’s 401(k) and put the money into her estate account. I’m the executor. Will there be any state income tax owed on $16,927.65? My mother was a New Jersey resident. One of my brothers and I are New Jersey residents and my other brother lives in New York. We are all beneficiaries. I’m having money withheld for federal income tax and would like to know if I should also have money withheld for New Jersey state income tax.
— Executor

A. We’re sorry to hear about your mom.

And we know the executor job is a big responsibility, so we’re glad you’re asking.

Based on the facts noted in your question, it appears that the beneficiary of your mother’s 401(k) plan account is her estate and not you or your brothers, said Gerard Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield.

If that is the case, when it’s distributed to your mother’s estate account, it is taxable income to the estate for both federal and New Jersey state tax purposes, Papetti said.

“However, the estate can receive a corresponding deduction for `Distributable Net Income (DNI)’ on the estate tax return if the proceeds are distributed to individual estate beneficiaries,” he said. “This would then shift the income tax liability from the estate to the beneficiaries.”

The beneficiaries that receive the distribution from the estate would receive Schedule K-1 from the estate income tax return, Form 1041, he said.

Assuming you and your brothers are named as beneficiaries under your mother’s Last Will and Testament, if you distribute the proceeds to you and your brothers, you will each report your share of the income on your personal federal and New Jersey or New York state income tax return, Papetti said.

“I would not have any tax withheld at the estate level if you plan to distribute the proceeds to you and your brothers,” he said.

He adds that that inherited IRAs are considered “Income in Respect of a Decedent” for federal estate tax purposes, which applies to large taxable estates in excess of $13.99 million, the 2025 federal estate tax exemption for assets passing to non-spousal beneficiaries.

“Any estate tax paid related to the IRA inclusion in the estate can be deducted against the inherited IRA taxable income,” he said. “New Jersey does not have an estate tax and for Class A beneficiaries which includes children of the decedent, there is no inheritance tax.”

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This story was originally published in November 2025.

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