Inheritance Tax
A state-level tax paid by the beneficiary (heir) based on the value of assets received from a deceased person, with rates and exemptions varying by the relationship to the deceased.
Understanding Inheritance Tax
Inheritance tax is different from estate tax (which is paid by the estate). As of 2025, states with inheritance tax include KY, MD, NE, NJ, and PA (Iowa fully repealed its inheritance tax in 2025). Spouses are typically exempt, and children often receive favorable rates or exemptions. Life insurance death benefits paid directly to named beneficiaries often receive favorable or exempt treatment under state inheritance tax laws.
Why This Matters for Retirement: Understanding Inheritance Tax is essential for making informed decisions about tax-free retirement income strategies. Whether you are evaluating an IUL policy, planning Roth conversions, or comparing retirement vehicles, this concept directly affects your outcomes.