It depends. If the death benefit was an inherited traditional IRA, you will most likely pay income taxes at your ordinary tax rate on the distribution. (Not applicable to a Roth IRA, as long as the Roth IRA was open for at least five years.) Federal tax law requires withholding of 20% of the taxable portion of the lump sum benefit paid. If your ordinary income tax rate is more than 20%, you will pay the difference in taxes. It may help to use a Tax Calculator such as TurboTax's Tax Caster tax calculator to determine how much you will, or will not, owe when you file your taxes.
