Inherit a $500,000 IRA From a Parent in Florida and Move It to Your Brokerage in California, and Sacramento Taxes Every Withdrawal at Up to 13.3%. The Heir’s State Decides, Not the Parent’s, and Here’s Where That Bill Is $0
Where you live when you inherit a parent's IRA matters far more than where your parent lived, and one four-word phrase to a custodian can quietly determine whether your tax bill runs into the tens of thousands or stays at…
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Consider a hypothetical heir. She was 58, an engineering manager in San Diego, when her mother died in Naples, Florida, in 2025. The estate was simple: a condo, a checking account and a traditional IRA worth $500,000 that named the daughter as only beneficiary.
The custodian asked what she wanted to do with the account. She told them to move it to her brokerage account. Six weeks later the money was sitting in a taxable account. The following January, a Form 1099-R reported all $500,000 as a distribution.
Her mother never paid state income tax in Florida. The daughter files in Sacramento, and California taxes that $500,000 as ordinary income at her own rates.
Heir’s Address Sets the State Tax Bill
California taxes “the entire taxable income of every resident of this state” under Cal. Rev. & Tax. Code § 17041(a)(1). The law makes no exception for money that started out in a state with no income tax. An IRA distribution counts as income to whoever receives it, in the year they receive it, so the beneficiary’s residence at that point is what matters.
Federal law works in the opposite direction 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 expressly covers individual retirement plans. A Florida heir of a California parent owes California nothing on the withdrawals. A California heir of a Florida parent owes California on every dollar.
Her instruction to “move it to my brokerage” caused the rest of the damage. Under 26 U.S.C. § 408(d)(3)(C), a beneficiary who isn’t the surviving spouse can’t roll an inherited IRA into their own account, and any amount received is taxable. When the money left the IRA, the full balance became income in a single year.
California Bill Runs $46,500 to $66,500
California’s base rate schedule tops out at 9.3%. In 2012, voters approved Proposition 30, which raised rates on high earners. In 2016, Proposition 55 extended those higher rates until 2030. Section 17043 adds another 1% tax on taxable income over $1,000,000. Together, the top marginal rate comes to 13.3%.
Her salary already fills the lower brackets, so every dollar of the distribution is taxed at 9.3% or more. At a flat 9.3%, the state tax on $500,000 is $46,500. At 13.3% on every dollar, it would be $66,500. Her real bill falls between those two numbers. That comes on top of federal tax, which hits 37% for single filers above $640,600 in 2026 no matter which state she lives in.
Today’s ballot raises the stakes. Proposition 3 would make California’s tax on high incomes permanent instead of allowing the higher rates expire in 2031.
Florida, Texas and Nevada Heirs 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. Plenty of families straddle these two states. In 2022-2023, 14,113 tax returns moved from Florida to California, and 20,241 moved the other way.
Even staying in California, she had a better option: a trustee-to-trustee transfer into an inherited IRA. Her mother died in 2025, so the account must be fully distributed by December 31, 2035. Her mother had already started required distributions, so the daughter also has to 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 we detailed it alongside eight others in a free guide here.
Withdrawals of $50,000 a year at 9.3% cost $4,650 a year in state tax, and none of that money hits the surcharge brackets. If she retires to Nevada in year five, every withdrawal she takes after becoming a Nevada resident is free of state tax.
Five Moves Before the Custodian Cuts a Check
- Use the exact words “trustee-to-trustee transfer to an inherited IRA” with the custodian. Never say “distribution” or “move it to my brokerage.”
- Check with the custodian whether the parent had hits their required beginning date. The answer determines whether you owe annual withdrawals in years one through nine.
- Line up your withdrawal schedule with where you plan to live. While you’re a California resident, take only the required minimum and leave the larger withdrawals for the years after a move.
- Document a real change of legal residence: a new driver’s license, voter registration, a home purchase or lease, and Form 540NR for the year you move. California auditors look closely at departures that happen right before a large payout.
- Check tonight’s Proposition 3 result. It determines whether the higher California rates end after 2030 or stay in place for the whole 10-year window.
Number That Decides the Inheritance
When a California resident takes a $500,000 inherited IRA out in one year, the state can collect as much as $66,500. For an heir living in Florida, the same withdrawal costs $0 in state tax.
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Vilma Rios is a tax professional and tax content contributor with more than 15 years of experience in tax and accounting. She specializes in federal tax research, tax education, and translating complex tax rules into clear, practical information for individuals, families, and small-business owners.
Vilma is a Content Tax Contributor II with the National Association of Tax Professionals (NATP), where she contributes to tax education and professional content. She has also presented tax information through webinars, including Spanish-language tax education, and has appeared on Telemundo 47 discussing tax topics and helping viewers understand important tax-filing requirements.
Her experience also includes tax and accounting work, tax research, IRS-related matters, and public tax education. While in college, Vilma volunteered in an IRS-sponsored tax assistance program and was recognized for her community service by local and state officials.
Known as “Your Tax Geek,” Vilma is passionate about making taxes easier to understand and helping people navigate an increasingly complex tax system.
