How to Report an Inherited IRA on Your Tax Return

To report an inherited IRA on your tax return, put the total distribution on Line 4a of Form 1040 and the taxable portion on Line 4b, using the Form 1099-R your IRA custodian sends after any payout of $10 or more.¹ Whether the taxable amount matches the gross amount depends on the type of IRA you inherited and whether the original owner ever made after-tax contributions.

Start With Your Form 1099-R

Every number you’ll enter on your return traces back to Form 1099-R. Your custodian issues it for any distribution of $10 or more, and it’s usually available by January 31, either mailed or posted to the institution’s online portal.¹ Four boxes carry the weight:

Box 1 shows the gross distribution — the full amount paid to you, regardless of tax status.
Box 2a shows the taxable amount as the custodian calculated it. For a traditional IRA with no basis, this usually equals Box 1.
Box 4 shows any federal income tax the custodian already withheld. That figure becomes a credit on your return.
Box 7 carries the distribution code. Code 4 identifies a distribution made because of the owner’s death, which tells the IRS not to apply the 10% early-withdrawal penalty that would otherwise hit anyone under 59½.

If the 1099-R Is Wrong

Errors happen: a wrong distribution code, an incorrect taxable amount, a missing withholding figure. Call the custodian first and ask for a corrected form. If you still haven’t received it by the end of February, call the IRS at 800-829-1040. The IRS will contact the custodian and send you Form 4852, a substitute you can use to file with estimated figures.² If a corrected 1099-R arrives later and the numbers differ from what you filed, submit an amended return on Form 1040-X.

Putting the Numbers on Form 1040

Lines 4a and 4b handle IRA distributions, and how you fill them in depends on whether the whole distribution is taxable or only part of it.

If the distribution is fully taxable — the usual outcome for an inherited traditional IRA with no basis — put the amount on Line 4b and leave Line 4a blank.³ If only part is taxable — because the original owner made nondeductible contributions, or because you inherited a Roth — put the total gross distribution on Line 4a and the taxable portion on Line 4b.⁴ The gap between the two figures signals to the IRS that some of the money was already taxed or otherwise excluded.

Received more than one distribution during the year? Add the taxable amounts together for Line 4b, and add the gross amounts together for Line 4a. Any federal tax shown in Box 4 of each 1099-R goes on the withholding line of your return as a credit against what you owe.

Traditional vs. Roth: Is the Money Actually Taxable?

A traditional IRA was funded with pre-tax dollars, so the IRS has never collected income tax on the money inside it. Every dollar you withdraw from an inherited traditional IRA counts as ordinary income in the year you receive it.³ A large distribution in a single year can push you into a higher bracket, which is why some beneficiaries space withdrawals across multiple tax years when the rules allow.

Inherited Roth IRAs work differently. The original owner already paid tax on the contributions, so you can withdraw the contribution portion tax-free. Earnings are also tax-free if the original owner first funded any Roth IRA at least five years before their death.⁵ If the account is younger than five years, the earnings portion may be subject to income tax. Most inherited Roths clear this threshold easily because the account was typically opened well before the owner’s death.

Form 8606 When There’s Basis

If the original owner ever made after-tax (nondeductible) contributions to their traditional IRA, those contributions created basis — money that has already been taxed once. You don’t pay tax on that basis again, but you also can’t just pull the basis out first and leave the taxable earnings behind. The IRS requires a pro-rata calculation on Form 8606.⁶

The math: divide the remaining basis by the total value of all your inherited traditional IRAs. That gives you the tax-free percentage. Multiply it by the year’s distribution to find the nontaxable portion. Only the rest goes on Line 4b. Recalculate every year you take a distribution until the basis is fully recovered.³

Skipping Form 8606 when a basis exists carries a $50 penalty per failure.⁷ The bigger cost is usually self-inflicted: you’ll overpay by treating the whole distribution as taxable. If you’re unsure whether the original owner made nondeductible contributions, check their past returns or ask their tax preparer — they should have filed their own Form 8606 tracking that basis.

Form 5329 if You Missed a Required Distribution

Missing a required minimum distribution triggers a 25% excise tax on the shortfall — the difference between what you should have taken and what you actually withdrew.⁸ The rate drops to 10% if you correct the shortfall within two years by withdrawing the missed amount.

Report the penalty on Form 5329, filed with your return. If the shortfall came from a reasonable error, such as a custodian processing delay or a misunderstanding about which year’s RMD applied, you can request a waiver. Attach a written explanation covering what went wrong and how you fixed it, and enter “RC” with the shortfall amount on the dotted line next to Line 54.⁹ The IRS reviews these case by case and will notify you if the waiver is denied.

One point that catches beneficiaries off guard: if the original owner had already started taking RMDs before death, you must continue taking annual distributions during the 10-year window, not just drain the account by year ten.¹⁰ Each annual distribution is a separate taxable event reported on that year’s return.

Reporting a Qualified Charitable Distribution

If you’re 70½ or older, you can direct up to $111,000 in 2026 from an inherited IRA straight to a qualifying charity and exclude that amount from taxable income.¹¹ The money has to move directly from the custodian to a 501(c)(3) organization; withdrawing it yourself and then writing a check doesn’t qualify.

The full amount still appears in Box 1 of your 1099-R. You claim the exclusion on your return by entering the total distribution on Line 4a and the reduced taxable amount on Line 4b. Write “QCD” next to Line 4b so the IRS can see why the two figures differ.³

The Estate Tax Deduction

This one applies to few beneficiaries, but skipping it can be expensive when it fits. If the estate that passed the IRA to you owed federal estate tax, part of that estate tax was attributable to the IRA balance. You can deduct that portion as an itemized deduction on Schedule A, Line 16.¹² It exists to prevent the same dollars from being taxed once in the estate and again as income to you.

Calculating the allocable share pulls information from the estate’s Form 706, so this is usually work for a tax professional. Most estates don’t owe federal estate tax at all, but for those that do, the deduction is easy to overlook.

State Returns

Federal reporting is only part of the picture. Most states with an income tax also treat inherited IRA distributions as taxable income, though some exempt retirement income entirely and others have no income tax at all. A small number of states also impose a separate inheritance tax, with rates that vary by your relationship to the deceased. Spouses and close relatives typically pay nothing; distant relatives or unrelated beneficiaries can face rates up to 18%. Your state tax agency’s website is the place to confirm what applies to your situation, because the state return may need its own adjustments for inherited retirement income.

Records to Keep

Keep copies of your 1099-R, Form 1040, Form 8606 (if you filed one), and any supporting documents for at least three years from the date you filed. That’s the standard window the IRS has to audit most returns.¹³ If you’re still taking distributions from the inherited IRA, hold onto your Form 8606 worksheets until the basis is fully used up, even if that runs past the three-year mark.

1
Internal Revenue Service. About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
2
Internal Revenue Service. Form W-2 and Form 1099-R (What to Do if Incorrect or Not Received)
3
Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
4
Internal Revenue Service. Instructions for Form 1040 – Section: Lines 4a, 4b, and 4c
5
Internal Revenue Service. Retirement Topics – Beneficiary
6
Internal Revenue Service. Form 8606 – Nondeductible IRAs
7
Office of the Law Revision Counsel. 26 U.S. Code 6693 – Failure to Provide Reports on Certain Tax-Favored Accounts
8
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
9
Internal Revenue Service. Instructions for Form 5329 (2025)
10
Federal Register. Required Minimum Distributions
11
Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs
12
Office of the Law Revision Counsel. 26 U.S. Code 691 – Recipients of Income in Respect of Decedents
13
Internal Revenue Service. How Long Should I Keep Records?