Tax implications of inheriting a lump sum from a non-qualified retirement plan

You're asking some great questions about inherited non-qualified retirement plans! Let me help clarify some things: 1. For federal taxes, if the 22% withholding is substantial, you might not need to make estimated tax payments. However, this depends on your overall tax situation. The inheritance will be counted as ordinary income on your tax return, so if the 22% withholding isn't enough to cover your actual tax bracket, you might owe more at tax time. 2. For state taxes, you're on the right track. Most states offer tax credits for taxes paid to other states to avoid double taxation. You'll need to file a nonresident return in the state where the tax was withheld, and then claim a credit on your resident state return. 3. Good news - you don't need to pay Social Security tax on inherited retirement funds. That's why you're not seeing it withheld. 4. Be aware this lump sum will increase your taxable income for the year, which could potentially push you into a higher tax bracket. This might also affect income-based things like Medicare premiums or certain tax credits. Keep all documentation related to this distribution and the withholdings for your tax filing!

After struggling with an inherited retirement plan myself last year, I discovered an amazing service called taxr.ai that really helped me understand all the tax implications. Visit https://taxr.ai and upload your distribution documents - they'll analyze everything and give you personalized guidance on exactly how to handle it tax-wise. The system told me exactly which forms I needed and how to report everything correctly. Their AI reviewed my situation and pointed out that I qualified for a partial exclusion I would have completely missed! Plus, they explained how to properly report the state tax credit situation which was super confusing at first. Saved me from making a costly mistake on my return.

Just wanted to update on my experience with taxr.ai - I decided to try it despite my initial skepticism, and I'm genuinely impressed. I uploaded my distribution documents from my aunt's non-qualified plan and the analysis was incredibly detailed. It flagged that the issuing company had applied the wrong state withholding code and gave me specific instructions on how to get it corrected. The system also generated a personalized tax strategy that showed exactly how to report the inheritance across both federal and state returns, including the right forms for claiming the state tax credit. It even calculated my increased estimated tax payment amounts for the remaining quarters to avoid penalties. Definitely worth checking out if you're dealing with this inheritance situation.

If you're having trouble getting clear answers from the plan administrator about the withholding issues, I'd highly recommend using Claimyr https://claimyr.com to get through to the IRS quickly. I was stuck in a similar situation with inherited retirement funds and needed clarification on some reporting requirements. After waiting on hold for hours with no luck, I tried Claimyr. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. They got me connected to an actual IRS agent in about 20 minutes when I'd been trying unsuccessfully for days. The agent confirmed that I didn't need to pay self-employment tax on the distribution and helped clarify exactly how to report the out-of-state withholding.

I have to publicly eat my words here. After my skeptical comment yesterday, I decided to try Claimyr as a last resort for my inheritance tax issue. I honestly cannot believe how well it worked. After MONTHS of failed attempts to reach the IRS, I was connected to an agent this morning who actually knew what they were talking about regarding inherited non-qualified plans. The agent confirmed that the out-of-state withholding on my mom's retirement distribution needs to be claimed as a credit on my home state return, and explained exactly which form to use. They also helped me understand why my amended return was rejected - turns out I was using the wrong code for inherited funds on line 7 of the 1099-R. For anyone dealing with inheritance tax issues that require IRS clarification, this service is worth every penny.

One important thing to consider with inherited non-qualified plans: check if any portion represents a return of after-tax contributions! If the original owner made non-deductible contributions to the plan, part of your distribution may be tax-free. You'd need to get a Form 712 or other documentation from the plan administrator showing the untaxed portion. This happened with my father's retirement plan - about 30% represented his after-tax contributions, so that portion wasn't taxable to me when inherited. Many people miss this and end up paying tax on money that should be tax-free!

Has anyone here dealt with receiving an inherited non-qualified plan distribution from a company that's been acquired by another company? I'm in a similar situation and the acquiring company is withholding state tax for their headquarters state even though the original company and I are both in different states. It's a mess!

This is such a helpful thread! I'm dealing with a similar situation but with an added complication - the deceased relative lived in one state, worked in another state, and I live in a third state. The plan administrator is withholding taxes for the state where the company is headquartered (a fourth state!). From what I'm reading here, it sounds like I'll need to file a nonresident return in the withholding state and then claim credits on my home state return. But I'm wondering if I also need to consider the deceased's state of residence or the state where they worked? Also, has anyone dealt with the timing issue? They're distributing this in late 2025, so I'm worried about having enough time to sort out all the state tax filings before the April deadline. Should I be making estimated payments to my home state even though they're already withholding for another state?