Income in Respect of a Decedent (IRD): IRAs, Wages, and Receivables

Income in respect of a decedent examples include unpaid wages and commissions, traditional IRA and 401(k) balances, accrued interest on bonds and CDs, declared-but-unpaid dividends, remaining installment sale payments, and outstanding business receivables. These are amounts the person earned or had a legal right to receive before dying, but that never made it onto a tax return during life. The death doesn’t erase the tax. Whoever ends up collecting the payment reports it as income, and it keeps the same character — ordinary income or capital gain — that it would have had in the decedent’s hands.¹

What Makes Something IRD

The defining test is simple: did the decedent have a right to the income at death that hadn’t yet been reported? Because most individuals use cash-basis accounting, income only hits a return when it’s actually received. Anything earned but uncollected at death falls out of the final return and becomes IRD under 26 U.S.C. § 691.¹

Two features set IRD apart from other inherited property. The income keeps its original character, so ordinary income stays ordinary and capital gain stays capital. And IRD does not get a stepped-up basis. Section 1014(c) specifically excludes any “right to receive an item of income in respect of a decedent” from the basis adjustment that normally applies to inherited assets.² Without that exclusion, a beneficiary who inherited an IRA could claim a basis equal to the account’s date-of-death value and pay no tax on withdrawals. The exclusion is what keeps the income taxable.

Unpaid Wages, Commissions, and Deferred Compensation

The clearest example is a paycheck the decedent earned but never cashed. IRS Publication 559 states that “the entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent.”³ That covers salary, hourly wages, commissions, bonuses declared before death, accrued vacation and sick-leave payouts, and deferred compensation. Whoever receives the payment reports it as ordinary income for the year collected.

Payments spread over time stay IRD across their entire tail. A salary paid out in five annual installments produces IRD each year an installment arrives, whether the estate collects it or the right has been handed off to a beneficiary.⁴ The same holds for renewal commissions earned during life but paid out for years afterward.

Traditional IRAs and 401(k)s

For most families, retirement accounts are the single largest block of IRD. The taxable balance of a traditional IRA at death — the total value minus any nondeductible contributions — is IRD because the decedent never paid income tax on those funds.³ Each distribution a beneficiary takes is ordinary income in the year of receipt. The same is true for pre-tax 401(k) balances.

Roth IRAs Are More Complicated Than People Assume

Qualified distributions from an inherited Roth IRA are tax-free, so in most cases they behave like non-IRD property. If a distribution doesn’t meet the qualified requirements, though — for instance, when the original owner held the Roth for less than five years — the earnings portion can be taxable. Publication 559 notes that “earnings attributable to the period ending with the decedent’s date of death are income in respect of a decedent.”³ A blanket assumption that every inherited Roth distribution is tax-free can produce an unpleasant surprise.

The 10-Year Rule Compresses the Tax Bill

For most non-spouse beneficiaries of someone who died in 2020 or later, the entire inherited retirement account must be emptied by the end of the 10th year following the year of death.⁵ That turns what used to be decades of modest withdrawals into a 10-year window and can push the beneficiary into higher brackets.

If the original owner had already begun required minimum distributions before death, the beneficiary must take annual distributions during the 10-year period and still empty the account by year 10.⁶ If the owner died before the required beginning date, the beneficiary can time withdrawals however they want inside the 10-year window.

A narrow group of “eligible designated beneficiaries” can still stretch distributions over their own life expectancy. That group includes the surviving spouse, a minor child of the account owner (until the child reaches the age of majority), a disabled or chronically ill individual, and anyone not more than 10 years younger than the deceased owner.⁵

Accrued Interest and Declared Dividends

Interest and dividends that accrued before death but weren’t paid until after are IRD. Accrued interest on a CD, a corporate bond, or a municipal bond counts. So does a dividend a corporation declared before the shareholder died but paid afterward. The question is whether the decedent had a legal right to the payment at death, not whether cash had changed hands.

U.S. Savings Bonds

Savings bonds deserve a close look because the interest often accumulates for decades without being reported. If the decedent used the cash method and never elected to report interest annually, the entire buildup is IRD. The Treasury regulations give a clean example: a decedent owns a Series E bond with a co-owner or beneficiary and dies before redemption, and “the entire amount of interest accruing on the bond and not includible in income by the decedent” is treated as income to the person who receives the bond.⁴

The executor has a choice worth knowing about. They can elect to include all interest earned through the date of death on the decedent’s final return, in which case the person who inherits the bond only reports interest earned after death.³ This can help when the decedent’s final-year income is low enough to absorb the interest at a lower rate than the beneficiary would pay. Skip the election and the full accumulation becomes income to whoever eventually cashes the bond.

Installment Sale Payments

If the decedent sold property on the installment method and died before collecting all the payments, the remaining payments are IRD. An installment sale is any sale where at least one payment comes in after the tax year of the sale.⁷ The estate or beneficiary who steps into the seller’s shoes uses the same gross-profit percentage the decedent established, so the same portion of each payment is taxable gain that would have been taxable to the decedent.³

Character carries through. If the original sale would have produced long-term capital gain for the decedent, the recipient reports long-term capital gain. This is one of the few IRD situations where the income may qualify for preferential capital gain rates rather than being taxed as ordinary income.

Business Receivables for Cash-Basis Owners

For a cash-basis sole proprietor, any accounts receivable outstanding at death are IRD. They represent services performed or goods delivered during the decedent’s lifetime for which payment hadn’t arrived. When the estate or beneficiary collects on those invoices, the amounts are ordinary business income. The regulations illustrate this with a farmer who sold and delivered apples to a canning factory but died before being paid. The amount the executor later collected from that completed sale was IRD.⁴

The line matters when a deal was still being negotiated. In the same regulation example, the decedent had been negotiating a second sale that hadn’t closed, and the executor later finished the deal and harvested additional crops to fill it. Only the portion tied to inventory on hand at death had any IRD component; the newly harvested crops were post-death estate income. The question is whether the decedent had a fixed, enforceable right to payment before death.

Where IRD Ends and Estate Income Begins

This distinction trips up executors constantly. IRD is income the decedent had a right to before death. Estate income is income generated by estate assets after death. Both get reported on the estate’s fiduciary return (Form 1041), but they’re treated differently.

A rental property makes it concrete. Rent for the month before death but collected afterward is IRD, because the decedent’s right to that rent existed while they were alive. Rent for the month after death is estate income, because the right to it arose after the decedent was gone.

The estate’s principal assets are a third category entirely. The house, the stock positions inside a brokerage account, the car in the driveway — transferring these to a beneficiary generally isn’t a taxable event, and most of them receive a basis adjustment to fair market value as of the date of death. That basis step-up is exactly the benefit IRD does not get.

The Section 691(c) Deduction for Double Taxation

IRD can be hit twice: once by the estate tax (because the right to the income is part of the gross estate) and again by income tax when the recipient collects it. Section 691(c) softens the second hit by letting the person who reports the IRD income deduct the portion of federal estate tax attributable to that income.¹ The executor computes the estate tax twice, once with the net IRD included in the gross estate and once without; the difference is the estate tax attributable to IRD, allocated proportionally among the recipients.⁸

The honest caveat: for 2026, the federal estate tax exemption is $15,000,000 per person.⁹ Most estates owe no federal estate tax, which means the 691(c) deduction produces no benefit at all for them. It only matters when the estate’s value exceeds the exemption, which is often driven by a large traditional IRA or 401(k) pushing the total over the line.

Who Reports IRD and When

Who reports an IRD item depends on who collects it. If the estate receives the payment, the estate reports it on Form 1041 for the year received. If the decedent’s will or beneficiary designation directs the asset to a named person — an IRA left to an adult child, for example — that person reports the income on their own Form 1040 as distributions come in.¹⁰

Reporting can stretch across many years. Deferred compensation paid in installments produces taxable income each year a payment arrives. An inherited traditional IRA pulled out over a 10-year window produces IRD income in every year the beneficiary takes a withdrawal. The character is locked in by the original transaction, and the recipient doesn’t get to reclassify it.

1
Office of the Law Revision Counsel. 26 USC 691 – Recipients of Income in Respect of Decedents
2
Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired from a Decedent
3
Internal Revenue Service. Publication 559 Survivors Executors and Administrators
4
eCFR. 26 CFR 1.691(a)-2 – Inclusion in Gross Income by Recipients
5
Internal Revenue Service. Retirement Topics – Beneficiary
6
Internal Revenue Service. Notice 2024-35 – Certain Required Minimum Distributions
7
Internal Revenue Service. Topic No. 705 – Installment Sales
8
eCFR. 26 CFR 1.691(c)-1 – Deduction for Estate Tax Attributable to Income in Respect of a Decedent
9
Internal Revenue Service. What’s New – Estate and Gift Tax
10
Internal Revenue Service. Topic No. 356 – Decedents