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Lou, Tax Preparer
Category: Tax
Satisfied Customers: 404
Experience:  25+ yrs Experience Personal Income Taxes - Former DM for H&R Block in California
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I am the beneficiary of my mothers life insurance ...

Resolved Question:

I am the beneficiary of my mother''s life insurance policy.
My mother was an employee of the state and the policy is issued by Teacher Retirement System. They sent me a form to complete and are treating this as if I am cashing out an IRA. Questions on their form are relavent to Rolling over the funds to an IRA. My understanding is if I am a beneficiary of life insurance - it will not be taxable. Will this be applicable to Federal Income Tax Withhold as well as the 10% penalty (The same as cashing out an IRA or 401K early)?
Submitted: 9 years ago.
Category: Tax
Expert:  Lou replied 9 years ago.

Thank you for contacting 'Just Answer', we appreciate the opportunity to be of service to you.

If, in fact, the proceeds are from a Life Insurance policy those proceeds are not subject to Federal Income Tax or the 10% penalty. The only time Life Insurance proceeds might be taxable to the beneficiary would be if the ownership of the policy was transferred for value. It seems you also might have received forms relating to her Retirement money which is an altogether different matter. I would need more information about that money to be of further assistance


Customer: replied 9 years ago.
Reply to Lou's Post: After doing some further research, it appears it is her retirement funds and is applicable to Federal Income tax.(Through the 'Teacher Retirement System' There is a paragraph on the paperwork I received which states:
Beneficiaries: If you are a beneficiary, your payment is generally not subject to the additional 10% tax, even if you are younger than age 59 1/2. Would you agree?
Expert:  Lou replied 9 years ago.
Yes, I would agree. Income tax would be assessed but not the 10% penalty
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