Table of Contents
- What Is Income in Respect of a Decedent (IRD)?
- Key Takeaways
- Understanding Income in Respect of a Decedent (IRD)
- How IRD Is Taxed
- How IRD Works for IRAs and 401(k)s
- Special Rules for Spouses
- Impact on Estates
- How Do I Report IRD?
- What’s the Difference Between Inheritance and IRD?
- How Is a Beneficiary Taxed on IRD That’s a Required Minimum Distribution (RMD)?
- The Bottom Line
What Is Income in Respect of a Decedent (IRD)?
Let me explain what Income in Respect of a Decedent, or IRD, really means. It's untaxed income that the deceased person earned or had a right to during their life. If you're the beneficiary or entity inheriting this, you owe the taxes on it.
IRD also gets included in the decedent's estate for federal estate tax calculations, which could mean double taxation. But you, as the beneficiary, might deduct the estate tax paid on that IRD. You have to report IRD as income in the year you receive it.
Key Takeaways
IRD is untaxed income the decedent earned or was entitled to while alive. It's taxed as if the decedent were still living, and under most circumstances, you as the beneficiary are responsible for paying those taxes.
Understanding Income in Respect of a Decedent (IRD)
IRD is outlined in Internal Revenue Code Section 691. It comes from sources like uncollected salaries, wages, bonuses, commissions, vacation pay, sick pay, uncollected rent, and retirement income.
Other IRD sources include payments for crops, accrued interest and dividends, distributions from deferred compensation and stock option plans, accounts receivable for sole proprietors, and gains from property sales if the sale happened before death but proceeds came after. Importantly, IRD covers income from sales commissions and IRA distributions owed at death.
How IRD Is Taxed
IRD gets taxed just as it would have been if the decedent received it while alive. For instance, capital gains go at the capital gains rate, and uncollected compensation counts as ordinary income on your tax return for the year you get it. There's no step-up in basis for IRD.
How IRD Works for IRAs and 401(k)s
Common IRD examples include distributions from tax-deferred plans like 401(k)s and traditional IRAs passed to you as beneficiary. If someone dies leaving you a $1 million IRA, you pay taxes on any distributions from it. You might need to start taking required minimum distributions (RMDs) at some point.
Special Rules for Spouses
If you're a surviving spouse and sole beneficiary, you get rights others don't. You can roll over the decedent's IRA into your own and delay RMDs until age 73. But any beneficiary, including you, must follow RMD rules and pay taxes on distributions. Note that the SECURE Act raised the RMD age to 72 in 2019, and SECURE 2.0 bumped it to 73 in 2022.
Impact on Estates
If the decedent died after reaching RMD age, their RMD for that year might count in the estate, especially without designated beneficiaries. If it pushes the estate over the federal exclusion—$13.99 million for 2025—an estate tax applies. To minimize this, people use estate planning like credit shelter trusts, which delay estate taxes until the surviving spouse's death.
How Do I Report IRD?
If you receive IRD as a beneficiary, report it on your personal income tax return for the year you get it.
What’s the Difference Between Inheritance and IRD?
Inheritance is property left to you by the decedent. IRD is income owed to them but not received before death, which might go to you. For example, an RMD from an inherited IRA that the decedent should have taken in their death year falls to you. You don't usually tax inheritance, but you do tax IRD you receive.
How Is a Beneficiary Taxed on IRD That’s a Required Minimum Distribution (RMD)?
You get taxed on an RMD just as the decedent would have. An RMD from a traditional IRA counts as regular income, and you report it that way, owing tax based on your bracket.
The Bottom Line
IRD is income owed to someone who dies before getting it. If you receive it as beneficiary, you owe taxes on it. If it creates an estate tax liability, you might deduct the estate taxes related to that IRD amount.
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