diff --git a/src/main/kotlin/org/rust/ide/annotator/RsErrorAnnotator.kt b/src/main/kotlin/org/rust/ide/annotator/RsErrorAnnotator.kt
index 5e74a0ee5df..1e716437aae 100644
--- a/src/main/kotlin/org/rust/ide/annotator/RsErrorAnnotator.kt
+++ b/src/main/kotlin/org/rust/ide/annotator/RsErrorAnnotator.kt
@@ -27,12 +27,8 @@ import org.rust.lang.core.resolve.Namespace
 import org.rust.lang.core.resolve.knownItems
 import org.rust.lang.core.resolve.namespaces
 import org.rust.lang.core.resolve.ref.deepResolve
-import org.rust.lang.core.types.TraitRef
-import org.rust.lang.core.types.implLookup
-import org.rust.lang.core.types.asTy
-import org.rust.lang.core.types.inference
+import org.rust.lang.core.types.*
 import org.rust.lang.core.types.ty.*
-import org.rust.lang.core.types.type
 import org.rust.lang.utils.RsDiagnostic
 import org.rust.lang.utils.RsErrorCode
 import org.rust.lang.utils.addToHolder
@@ -104,7 +100,7 @@ class RsErrorAnnotator : RsAnnotatorBase(), HighlightRangeExtension {
                     it is RsTypeParameterList ||
                     it is RsFieldsOwner ||
                     it is RsForeignModItem ||
-                    it is RsRetType && it.ancestorStrict<RsTraitOrImpl>()?.implementedTrait != null
+                    it is RsRetType && it.parent.ancestorStrict<RsTraitOrImpl>(RsAbstractable::class.java)?.implementedTrait != null
                 // type alias and let expr are not included because
                 // they are planned to be allowed soon
             }
diff --git a/src/main/kotlin/org/rust/lang/core/psi/ext/PsiElement.kt b/src/main/kotlin/org/rust/lang/core/psi/ext/PsiElement.kt
index 153516cdafa..858820d3964 100644
--- a/src/main/kotlin/org/rust/lang/core/psi/ext/PsiElement.kt
+++ b/src/main/kotlin/org/rust/lang/core/psi/ext/PsiElement.kt
@@ -70,6 +70,9 @@ val PsiElement.elementType: IElementType
 inline fun <reified T : PsiElement> PsiElement.ancestorStrict(): T? =
     PsiTreeUtil.getParentOfType(this, T::class.java, /* strict */ true)
 
+inline fun <reified T : PsiElement> PsiElement.ancestorStrict(stopAt: Class<out PsiElement>): T? =
+    PsiTreeUtil.getParentOfType(this, T::class.java, /* strict */ true, stopAt)
+
 inline fun <reified T : PsiElement> PsiElement.ancestorOrSelf(): T? =
     PsiTreeUtil.getParentOfType(this, T::class.java, /* strict */ false)
 
diff --git a/src/test/kotlin/org/rust/ide/annotator/RsErrorAnnotatorTest.kt b/src/test/kotlin/org/rust/ide/annotator/RsErrorAnnotatorTest.kt
index edfa25883dc..592da51ed28 100644
--- a/src/test/kotlin/org/rust/ide/annotator/RsErrorAnnotatorTest.kt
+++ b/src/test/kotlin/org/rust/ide/annotator/RsErrorAnnotatorTest.kt
@@ -2342,6 +2342,11 @@ class RsErrorAnnotatorTest : RsAnnotatorTestBase(RsErrorAnnotator::class.java) {
         
             fn in_trait_impl_return() -> <error descr="`impl Trait` not allowed outside of function and inherent method return types [E0562]">impl Debug</error> { () }
             //~^ ERROR `impl Trait` not allowed outside of function and inherent method return types
+            
+            fn wrapper() {
+                fn in_nested_impl_return() -> impl Debug { () }
+                // Allowed
+            }
         }
         
         // Allowed