The last post I saw on this topic was in 2019. For 2023 tax year will a distribution taken from an Inherited Non Spouse IRA be taxable to me (the beneficiary)? I am under the 10 year rule and 66 years old and this year my income is lower, so it seems like a good time to take out a distribution over and above the RMD amount. I know I have to pay Federal Tax but not sure what current tax law is about Illinois State Tax. I know IL does not normally tax IRA distributions but didn't know if they treat non-spousal inherited IRA distributions differently. Please advise. Thanks
Distributions received by a beneficiary are taxable income to the beneficiary. If the distribution occurred in 2023, you'll receive a code-4 Form 1099-R near the end of January 2024 that you'll need to report on your 2023 tax return.
Yes, for most people it makes sense for a beneficiary subject to the 10-year rule to take more than the RMD so as to avoid a large distribution in year 10 that could result in paying taxes at a higher marginal tax rate.
Nothing in Illinois Pub 120 suggests that it is taxable in Illinois, but that publication makes no specific mention of distributions from inherited accounts. TurboTax's state module for Illinois should handle this for you. If you used the CD/download version of TurboTax for 2022, you could use that to simulate your 2023 tax return to see how Illinois handles it.
It is astonishing to me that Illinois exempts all IRA withdrawals, even if the person is not actually retired, but that seems to be the case.
https://tax.illinois.gov/content/dam/soi/en/web/tax/research/publications/pubs/documents/pub-120.pdf
(They don't tax IRA rollovers to a Roth! And there is no age restriction to just retired people.)
I could be reading the wrong document, but that's what it seems to say.
Distributions received by a beneficiary are taxable income to the beneficiary. If the distribution occurred in 2023, you'll receive a code-4 Form 1099-R near the end of January 2024 that you'll need to report on your 2023 tax return.
Yes, for most people it makes sense for a beneficiary subject to the 10-year rule to take more than the RMD so as to avoid a large distribution in year 10 that could result in paying taxes at a higher marginal tax rate.
Nothing in Illinois Pub 120 suggests that it is taxable in Illinois, but that publication makes no specific mention of distributions from inherited accounts. TurboTax's state module for Illinois should handle this for you. If you used the CD/download version of TurboTax for 2022, you could use that to simulate your 2023 tax return to see how Illinois handles it.
Thanks for the response. I went back and looked at my 2022 return and TT included the RMD I took last year on line 5 (along with my Pension amount). This is eventually subtracted from Total Income to determine the Illinois Base Income on line 9. So TT in 2022 did not tax an Inherited Non Spouse IRA Distribution. I finally found one big advantage of living in IL <smile>. Thanks for your help.