Are Inherited IRA Distributions Taxable in PA?

Inherited IRA distributions are generally not taxable in Pennsylvania. The state’s 3.07% personal income tax does not apply to withdrawals from an inherited Traditional or Roth IRA. Two other taxes can apply, though: Pennsylvania inheritance tax on the account’s date-of-death value (depending on the original owner’s age), and federal income tax on Traditional IRA distributions at your ordinary rate.

Pennsylvania Income Tax on the Distributions

Pennsylvania excludes payments from IRAs, 401(k) plans, 403(b) plans, and pensions from taxable income under the state’s flat 3.07% personal income tax.¹ The exclusion covers inherited accounts and applies whether the IRA is Traditional or Roth, and regardless of the size of the withdrawal.

The practical result: a $50,000 withdrawal from an inherited Traditional IRA generally produces no Pennsylvania income tax bill, even though the same withdrawal is fully taxable federally. If your inherited account is an unusual arrangement rather than a standard IRA or employer plan, confirm with the Department of Revenue that it qualifies for the exclusion before you file.

Pennsylvania Inheritance Tax on the IRA Itself

The tax that most often catches beneficiaries by surprise is inheritance tax on the account value, which is separate from any income tax on withdrawals. Pennsylvania decides whether an IRA is subject to inheritance tax based on whether the decedent had penalty-free access to the money during their lifetime.² That test comes down to age:

If the decedent was under age 59½ at death, the IRA is generally exempt from Pennsylvania inheritance tax. The 10% federal early-withdrawal penalty means the owner did not have penalty-free access.
If the decedent was 59½ or older, the full date-of-death value is subject to inheritance tax.

The Pennsylvania Department of Revenue has stated this framework directly.³ One wrinkle: if the decedent was considered disabled, the IRA can be taxable even if death occurred before 59½.

Rates by Relationship

When inheritance tax does apply, the rate depends on your relationship to the decedent:⁴

0% for a surviving spouse, or a parent inheriting from a child aged 21 or younger
4.5% for children, grandchildren, and other lineal descendants
12% for siblings
15% for everyone else (nieces, nephews, friends, unrelated beneficiaries)

Qualifying charities and government entities pay nothing.

Roth IRAs Split Into Two Pieces

Roth IRAs don’t follow the all-or-nothing rule that applies to Traditional accounts. The Department of Revenue separates contributions from earnings:³

Roth contributions are always subject to inheritance tax, at any age, because they can be withdrawn penalty-free at any time.
Roth earnings are generally exempt when the decedent died before 59½, because a 10% penalty would have applied to withdrawing them.

If you inherit a Roth IRA from someone who died before 59½, ask the financial institution for a written breakdown of contributions versus earnings as of the date of death. Only the contribution portion goes on the inheritance tax return.

Federal Income Tax on the Distributions

Federal treatment is where an inherited Traditional IRA generates a real tax bill. Distributions are included in your gross income for the year you receive them and taxed at your ordinary federal income tax rate.⁵ If the original owner made any nondeductible contributions, the portion of each distribution representing that after-tax basis is not taxed again.⁶

Inherited Roth IRAs are treated more favorably. Qualified distributions, where the original owner held the account for at least five years, are generally tax-free federally.

The 10-Year Rule and Why Timing Matters

Most non-spouse beneficiaries who inherit an IRA after 2019 must empty the account within 10 years of the original owner’s death, a change made by the SECURE Act.⁷ If the original owner had already started required minimum distributions, you must also take annual distributions during the 10-year window, not just clear the account by year 10.

Some beneficiaries escape the 10-year rule and can still stretch distributions over their own life expectancy:

Surviving spouses
Minor children of the decedent, until they reach the age of majority
Disabled or chronically ill individuals
Beneficiaries not more than 10 years younger than the decedent

Because Pennsylvania doesn’t tax the distributions, the 10-year rule has no state income tax effect for PA residents. Federally, though, waiting until year 10 to withdraw a large balance can push you into a higher bracket. Spreading withdrawals across the window usually reduces the total federal bill.

Reporting and Deadlines

If the IRA is subject to Pennsylvania inheritance tax, it’s reported on Form REV-1500, Schedule G, which covers assets that pass by beneficiary designation rather than through probate.⁸ You’ll need a date-of-death valuation from the financial institution, the decedent’s age at death, and (for a Roth) the contribution/earnings split. The return goes to the Register of Wills in the county where the decedent lived, not directly to the Department of Revenue.⁹

Key dates and amounts to know:

The return and payment are due nine months after the date of death. Interest accrues on any balance unpaid after that.⁹
Pay within three months and Pennsylvania gives you a 5% discount on the tax owed. On a $200,000 IRA taxed at 4.5%, that’s $450 saved.⁹
Missing the nine-month deadline triggers a penalty of 25% of the tax due or $1,000, whichever is less, on top of interest.⁸
A one-time six-month extension to file is available using Form REV-1846, but it does not extend the payment deadline; interest still runs.¹⁰

If the Decedent Lived Outside Pennsylvania

Pennsylvania inheritance tax follows the decedent’s residence, not the beneficiary’s. If the IRA owner was a PA resident, the account is taxable in Pennsylvania no matter where you live. But if the owner lived in another state, Pennsylvania generally does not tax the IRA even when the beneficiary is a PA resident. Non-resident decedent returns cover only real property and tangible personal property physically located in Pennsylvania, and an IRA is intangible property.¹¹ Check your own state’s rules, though, because some states tax inherited retirement distributions as income even when Pennsylvania doesn’t.

1
Commonwealth of Pennsylvania. Personal Income Tax Rates
2
Commonwealth of Pennsylvania. 61 Pa. Code 93.131 – Payments From Employment Benefit Plans and Life Insurance Contracts
3
Pennsylvania Department of Revenue. Is a Decedent’s IRA or 401K Subject to PA Inheritance Tax
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Department of Revenue | Commonwealth of Pennsylvania. Inheritance Tax
5
Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts
6
Internal Revenue Service. Publication 590-B – Distributions From Individual Retirement Arrangements
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Office of the Law Revision Counsel. 26 U.S. Code 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
8
Pennsylvania Department of Revenue. REV-1500 Pennsylvania Inheritance Tax Return Resident Decedent
9
Commonwealth of Pennsylvania. Make an Inheritance Tax Payment
10
Justia Forms. REV-1846 Extension to File Pennsylvania Inheritance Tax Return
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Justia Forms. REV-1737-A Inheritance Tax Return – Nonresident Decedent