You've written that IRA beneficiaries can share a $20,000 New York State tax exclusion. My question: Four sons inherit an IRA in equal shares from Mom, who died after she had reached 59½. Three are New York State residents, and one resides out of state. Do the three New York brothers split the $20,000 exclusion, each getting 33%, a $6,66.66 exclusion each? Or is it divided between the four of them, a $5,000 exclusion each?
The tax exclusion is divided between the four beneficiaries, even if one of them can’t use it.
A quick recap for readers: The $20,000 New York Pension and Annuity exclusion applies to income from pensions, annuities and retirement accounts. An individual retirement account owner who's over 59½ for the entire tax year can claim the full exclusion. IRA beneficiaries can claim it, regardless of their own ages, if the deceased owner was at least 59½ when he or she died. But their exclusion is reduced by the amount the decedent subtracted on her New York tax return. (In other words, the total exclusion claimed by the decedent and her beneficiaries in a single tax year can't exceed $20,000.)
The law says to determine each beneficiary's share of the tax exclusion, you multiply $20,000 by a fraction whose numerator is the value of the beneficiary's share of the inherited retirement account, and whose denominator is the total value inherited by all the beneficiaries.
In plain English: Mom leaves $100,000 to her four sons. Each son inherits $25,000. In a year when she didn't use her $20,000 exclusion, each son gets an exclusion of $20,000 x 25% ($25,000/$100,000) = $5,000.
The bottom line
The New York Pension and Annuity tax exclusion is divided between a New York resident’s IRA beneficiaries, regardless of where they live.
TO ASK THE EXPERT Send questions to email@example.com. Include your name, address and phone numbers. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own consultants for your specific needs.