Inheriting a $500,000 IRA From a Florida Parent and Rolling It Into a California Brokerage Can Trigger Up to 13.3% State Tax. The Beneficiary’s Home State Controls, and Some States Owe $0

Where you live when you inherit a parent’s IRA can matter more than where that parent lived. A few carefully chosen words to a custodian may mean the difference between a tax bill worth tens of thousands of dollars and one that is nothing at all.

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Take a hypothetical heir: a 58-year-old engineering manager in San Diego whose mother died in Naples, Florida. The estate was straightforward, consisting of a condo, a checking account, and a traditional IRA worth $500,000 with the daughter named as the sole beneficiary.

When the custodian asked what she wanted to do with the account, she instructed them to move it to her brokerage account. Six weeks later, the money sat in a taxable account. The next January, a Form 1099-R showed the entire $500,000 as a distribution.

Her mother had never paid Florida state income tax, but the daughter files in Sacramento, and California taxes the $500,000 as ordinary income at her own rates.

The Beneficiary’s Residence Determines the State Tax

California taxes “the entire taxable income of every resident of this state” under Cal. Rev. & Tax. Code § 17041(a)(1). There is no exception for money that began in a state with no income tax. An IRA distribution is income to the person who receives it in the year it is received, so the beneficiary’s residence at that time is what controls.

Federal law operates differently for nonresidents. Under 4 U.S.C. § 114, “No State may impose an income tax on any retirement income of an individual who is not a resident or domiciliary of such State,” and the definition specifically includes individual retirement plans. A Florida heir of a California parent owes California nothing on withdrawals. A California heir of a Florida parent owes California tax on every dollar.

Her request to “move it to my brokerage” created the rest of the problem. Under 26 U.S.C. § 408(d)(3)(C), a beneficiary who is not a surviving spouse cannot roll an inherited IRA into their own account, and any amount received is taxable. Once the money left the IRA, the full balance became income in a single year.

California Tax Could Range From $46,500 to $66,500

California’s base tax schedule rises to 9.3%. In 2012, voters approved Proposition 30, which increased rates for high earners. In 2016, Proposition 55 extended those higher rates through 2030. Section 17043 adds another 1% tax on taxable income above $1,000,000. Combined, the top marginal rate is 13.3%.

Because her salary already uses up the lower brackets, every dollar of the distribution is taxed at 9.3% or more. At a flat 9.3%, the state tax on $500,000 would be $46,500. At 13.3% on the full amount, it would be $66,500. Her actual bill would land somewhere between those figures. That is in addition to federal tax, which reaches 37% for single filers above $640,600 in 2026 regardless of state of residence.

The ballot also raises the stakes. Proposition 3 would make California’s higher tax rates on top incomes permanent rather than allowing them to expire later in the decade.

Heirs in Florida, Texas, Nevada and Other No-Tax States Pay $0

If the daughter lived in Florida, Texas, Nevada, Washington, Tennessee, South Dakota, Wyoming, or Alaska, the state tax on the same $500,000 withdrawal would be $0. Many families split time across these states. In 2022-2023, 14,113 tax returns moved from Florida to California, while 20,241 moved from California to Florida.

Even if she stayed in California, she had a better option: a trustee-to-trustee transfer into an inherited IRA. Because her mother died in 2025, the account must be fully distributed by December 31, 2035. Since her mother had already begun required distributions, the daughter must also take annual minimums based on the longer of her own single life expectancy or her mother’s. The inherited IRA rule is one of several quiet IRS traps that can drain six figures from a retirement account, and it was covered along with eight others in a free guide.

Withdrawals of $50,000 a year at 9.3% would create $4,650 in annual state tax, and none of that income would reach the surcharge brackets. If she retires to Nevada in year five, every withdrawal after she becomes a Nevada resident would be free of state tax.

Five Steps to Take Before the Custodian Issues a Check

• Use the exact phrase “trustee-to-trustee transfer to an inherited IRA” with the custodian. Do not say “distribution” or “move it to my brokerage.”
• Confirm whether the parent had reached the required beginning date. That answer determines whether annual withdrawals are required in years one through nine.
• Plan withdrawals around where you intend to live. While you are a California resident, take only the required minimum and postpone larger withdrawals until after a move.
• Document a genuine change of legal residence with a new driver’s license, voter registration, a home purchase or lease, and Form 540NR for the year you move. California auditors pay close attention to departures that occur just before a large payout.
• Track the result of Proposition 3. It will decide whether California’s higher rates end later or remain in place for the full 10-year period.

The Number That Shapes the Inheritance

When a California resident withdraws a $500,000 inherited IRA in a single year, the state can collect as much as $66,500. For an heir living in Florida, the same withdrawal creates $0 in state tax.