Tax Treatment of Inheritance
Inherited cash/property: $0 federal tax. You keep the full amount.
Inherited retirement accounts (IRA, 401k): Taxed as income when you withdraw. Required Minimum Distributions (RMDs) annually.
State inheritance tax: Only 6 states have it. If deceased lived elsewhere, you're safe.
Steps to Claim Inheritance
1. Get documents: Will, death certificate, probate court letter (if applicable).
2. Probate or trust transfer: Lawyer or estate executor handles paperwork. ITIN holders can inherit—banks accept ITIN as ID.
3. Inherited retirement account? Roll to "inherited IRA" and set up Required Minimum Distribution schedule.
4. File taxes: Consult tax pro about reporting inherited amounts, RMDs, and any income generated.
ITIN Holder Challenges
Probate courts: May ask for SSN. Provide ITIN as alternative ID. Most accept it.
Banks: Some want SSN for inherited account access. Again, ITIN is acceptable.
Lawyer helps: Worth hiring for probate navigation if you don't have SSN/concerned about ID issues.
RMD Basics (Inherited Retirement Accounts)
If you inherit an IRA at age 35 with $100k balance:
- You must take RMDs annually based on IRS life expectancy table
- Each RMD is taxed as ordinary income
- Miss an RMD? 25% penalty on shortfall (2026 rules)
Consult a tax professional to set up the withdrawal schedule correctly.
Frequently Asked Questions
Is inherited money taxed?
In most cases you do not pay federal income tax just for receiving an inheritance. But inherited retirement accounts (a traditional IRA or 401(k)) are taxed as you withdraw, and very large estates may owe estate tax before assets are distributed.
Can ITIN holders inherit money or property?
Yes — inheriting assets is a legal right regardless of immigration status. You may need an ITIN to handle the tax reporting on inherited accounts or income.
What are RMDs on an inherited retirement account?
Most non-spouse heirs must empty an inherited IRA or 401(k) within 10 years, and some must take annual required minimum distributions during that window. Withdrawals from traditional accounts are taxable.
What should I do first after inheriting?
Do not rush. Park the money somewhere safe, understand how each asset is taxed, and avoid lifestyle inflation. For retirement accounts and larger estates, a tax professional is worth the cost.