State Taxes on Inherited IRA: Income Tax + Inheritance Tax by State (2026)

Federal tax gets most of the attention — but two state-level taxes can add a significant second layer, depending on where the decedent lived and where you live now.

Part 1: State income tax on inherited IRA distributions

When you withdraw from an inherited IRA, the distribution is taxed as ordinary income for federal purposes. Most states follow the federal treatment and tax it the same way. But 13 states don't tax IRA distributions at all in 2026:

The 13 states that don't tax IRA distributions (2026)

Nine states with no state income tax

These states impose no state income tax on any income, including inherited IRA withdrawals:

Four states that exempt retirement income including IRA distributions

These states have income tax but carve out retirement distributions entirely:

Iowa (age 55+ exemption)

Iowa residents age 55 and older pay no Iowa income tax on retirement distributions including IRA withdrawals. Iowa is also transitioning to a flat 3.8% income tax rate in 2026 for non-retirement income.²

All other states: inherited IRA distributions taxed as ordinary income

The remaining 36+ states tax IRA distributions at your ordinary income rate, just like wages. The combined federal + state rate for a mid-career inheritor in, say, California (top state rate 13.3%) or New York (top rate 10.9%) taking a large lump-sum distribution in year 10 can easily exceed 50% on the marginal dollars.

This is why the 10-year distribution strategy matters enormously. Spreading withdrawals across 10 years — rather than taking a lump sum — keeps each year's distribution within a lower state bracket. Use the 10-Year Withdrawal Optimizer to model the difference in your state.

Part 2: State inheritance tax on the inherited IRA balance

This is a separate and less-understood tax. Five states impose an inheritance tax on property transferred at death — including IRA balances — based on the relationship between the decedent and the beneficiary. This tax is owed on the account value at death, not on distributions over time.

The key detail: inheritance tax depends on where the decedent lived, not where you live. If your parent died in Pennsylvania as a Pennsylvania resident, Pennsylvania inheritance tax applies regardless of where you live now.

Iowa eliminated its inheritance tax in 2025, leaving five states.

Kentucky

Kentucky inheritance tax applies based on the beneficiary's relationship to the decedent:³

• Class A (exempt): surviving spouse, parent, child, grandchild, sibling, half-sibling. No inheritance tax.
• Class B (4–16%): aunt, uncle, niece, nephew, daughter-in-law, son-in-law, and their descendants. First $1,000 exempt; rates graduate from 4% to 16% above $200,000.
• Class C (6–16%): all others not in Class A or B. First $500 exempt.

For the most common inherited IRA scenarios — child inheriting from parent — Kentucky imposes no inheritance tax. More distant relatives face significant rates.

Maryland

Maryland is the only state with both an estate tax and an inheritance tax. The inheritance tax rate is a flat 10% on property passing to a "collateral heir" — anyone who is not a spouse, parent, grandparent, child (including stepchild), grandchild, or sibling.⁴

For a child inheriting a parent's IRA in Maryland: no Maryland inheritance tax. For a niece inheriting from an aunt, or an unrelated beneficiary: 10% of the full IRA value is owed to Maryland.

Nebraska

Nebraska inheritance tax applies to most beneficiaries except surviving spouses (fully exempt) and charities. The tax is assessed on the IRA value at death, due within 9 months, separate from any federal income tax on withdrawals:⁵

• Spouse: 0% — fully exempt
• Immediate family (Class 1 — children, grandchildren, parents, siblings): 1% on amounts above $100,000 exemption
• More distant relatives and others: graduated rates up to 18%

Nebraska taxes the IRA balance, not the individual distributions, and must be paid before or as the account is distributed — not spread over 10 years.

New Jersey

New Jersey eliminated its estate tax in 2018 but kept its inheritance tax. Beneficiary classes:⁶

• Class A (exempt): spouse, civil union partner, domestic partner, parent, grandparent, child (including adopted), stepchild, grandchild, great-grandchild. Fully exempt from New Jersey inheritance tax.
• Class C (11–16%): sibling, son-in-law, daughter-in-law. First $25,000 exempt; rates graduate from 11% to 16% above $1.7 million.
• Class D (15–16%): all others not in Class A or C. First $500 exempt; 15% up to $700,000, 16% above.

An adult child inheriting a parent's NJ IRA: no New Jersey inheritance tax. A sibling inheriting: 11–16% on amounts above $25,000. An unrelated beneficiary (e.g., a partner without civil union status): 15–16% from dollar one above $500.

Pennsylvania — the counter-intuitive one

Pennsylvania presents the most confusing combination for IRA beneficiaries, because the two state taxes run in opposite directions from most people's assumptions:⁷

Pennsylvania inheritance tax rates by relationship:

A child inheriting a $600,000 IRA from a Pennsylvania parent (over 59½) owes $27,000 in Pennsylvania inheritance tax (4.5% × $600,000), due within 9 months of death (with a 5% discount if paid within 3 months). The subsequent distributions taken over the 10-year window are not taxable for Pennsylvania income tax purposes — only federal income tax applies.

A sibling inheriting the same $600,000 IRA owes $72,000 in Pennsylvania inheritance tax (12%), due on the same 9-month schedule.

The double-taxation problem — and how to think about it

The most common question from inheritors in inheritance-tax states: "Am I being taxed twice?" The answer is: different taxes on different things.

• Inheritance tax is a tax on the transfer of wealth at death, assessed on the account balance.
• Income tax (federal + state) is a tax on the withdrawal of pre-tax funds, assessed each year you take a distribution.

If you're a Pennsylvania resident inheriting a Pennsylvania IRA as a child: you pay the 4.5% inheritance tax on the balance, then take 10 years of withdrawals subject to federal income tax only (no PA income tax). Your total combined rate depends on how large the inheritance tax payment is relative to your federal marginal bracket across the window.

In states like New York or California — which have neither an inheritance tax nor a retirement income exemption — you pay no upfront tax but owe state income tax on every dollar you withdraw, for 10 years.

Planning strategies by state situation

Inheritance tax states: pay attention to the 9-month deadline

Inheritance tax in all five states is due within 9 months of the decedent's date of death. In Pennsylvania, paying within 3 months earns a 5% discount on the tax owed. Missing the deadline triggers interest and penalties.

The inheritance tax obligation is separate from and prior to your distribution strategy. Even if you plan to spread distributions over 10 years, the inheritance tax is owed on the full balance now. Factor this into your liquidity planning at the outset.

High-income-tax states: front-load or back-load based on your trajectory

In high-income-tax states (California, New York, New Jersey, Oregon), taking the full 10-year window is almost always better than a lump-sum distribution. Whether to front-load or back-load within the window depends on your income trajectory:

• Front-load if you're in a higher-income phase now and expect your income to decline (near retirement, planning a career break, or waiting until Social Security starts to coordinate).
• Back-load if you're in a lower-income phase now and expect income to rise — but watch out for the year-10 spike, which can push a large distribution into the top state bracket all at once.
• Bracket-fill approach: take enough each year to fill the top of a lower bracket without crossing into the next. State brackets matter here — some states have a large jump at a specific threshold.

Considering state tax changes

Several states are in the process of reducing or eliminating income taxes:

• Mississippi is phasing out its income tax entirely — future distributions may be fully state-tax-free.
• Iowa is moving to a flat rate with full retirement income exemption for 55+ — if you're younger than 55 and inheriting from an Iowa decedent, watch for the exemption to apply when you reach age 55.
• Arizona, North Carolina, and others have been reducing rates. Verify your current state's rules annually, since they can shift during a 10-year distribution window.

Residency and the inherited IRA

Your state income tax exposure for distributions depends on where you live when you take each withdrawal. You're not locked into your state of residence at the time of inheritance. If you retire to Florida (no income tax) in year 4 of your 10-year window, the remaining distributions are Florida-sourced and not subject to state income tax.

Inheritance tax, by contrast, is determined by the decedent's state of residence at death and is not affected by where you or the assets move afterward.

When does an advisor actually add value here?

The state tax layer makes inherited IRA planning meaningfully more complex in three scenarios:

1. Inheritance tax states: the upfront tax changes the net account size and the timeline. A specialist can model after-tax proceeds under different distribution schedules and help coordinate the inheritance tax payment.
2. High-income-tax states: the combined federal + state marginal rate in each year of the 10-year window drives the optimal distribution pattern. A specialist builds a multi-year projection that includes state brackets, not just federal ones.
3. Anticipated residency changes: if you're considering moving states during the 10-year window, the timing of the move versus the distribution schedule can meaningfully affect lifetime tax. This requires modeling, not guesswork.

The mechanical rules — which states tax what — are knowable. What's harder to get right is the multi-year optimization across federal + state layers simultaneously, especially when your income, residency, and other accounts change across the window.

Sources

1. Michigan H.B. 4001 (2023), phasing in retirement income exemptions beginning tax year 2023, fully effective for the 2026 tax year. Michigan Department of Treasury.
2. Iowa SF 619 (2022) and subsequent legislation. Iowa residents age 55+ exempt from state income tax on retirement distributions; flat 3.8% rate on other income effective 2026. Iowa Department of Revenue.
3. Kentucky inheritance tax — KRS § 140.010 et seq. Class A beneficiaries (spouse, children, siblings) exempt; Class B and C rates 4–16%. Kentucky Department of Revenue — Inheritance Tax.
4. Maryland inheritance tax — MD Code, Tax-General § 7-203. Flat 10% on collateral heirs; lineal heirs exempt. Maryland also maintains an estate tax on estates above the Maryland exemption threshold. Maryland Comptroller — Inheritance Tax.
5. Nebraska inheritance tax — Neb. Rev. Stat. § 77-2001 et seq., updated by LB 310 (2023). Class 1 (immediate relatives): $100,000 exemption, 1% above. Spouses and charities fully exempt. Tax due within 9 months of death. Nebraska Department of Revenue — Inheritance Tax.
6. New Jersey inheritance tax — N.J.S.A. 54:33-1 et seq. Class A fully exempt; Class C (siblings, in-laws) 11–16% above $25,000; Class D (others) 15–16% above $500. NJ estate tax repealed effective January 1, 2018. New Jersey Division of Taxation — Inheritance Tax.
7. Pennsylvania inheritance tax — 72 Pa. C.S. § 9101 et seq. IRA subject to PA inheritance tax if decedent was 59½ or older at death (pre-59½ IRAs treated as still subject to early withdrawal penalty and not taxed). 4.5% for lineal descendants and ancestors; 12% for siblings; 15% for others; 0% for spouse. Pennsylvania does not impose income tax on retirement distributions meeting plan requirements. Pennsylvania Department of Revenue — Inheritance Tax; PA personal income tax — retirement distributions.

State tax rules verified against 2026 sources. State inheritance tax rates and exemptions are subject to legislative change. Always confirm current rules with a local estate attorney or CPA before relying on these figures. Values current as of May 2026.

InheritedIRAAdvisorMatch is a referral service, not a licensed advisory firm. We may receive compensation from professionals in our network. Content is for informational purposes only and does not constitute financial, tax, legal, or investment advice.