As non-spouse beneficiaries, you would report the income when you take withdrawals from the traditional IRA. You have 10 years starting with the year after death to withdraw all of the funds. You don't have income for 2025 unless you withdrew from the account.
Income in Respect of a Decedent (IRD) is income a deceased person was entitled to but did not receive before death, taxable to the beneficiary or estate in the year it is received. It is reported on Form 1040 (beneficiary) or Form 1041 (estate). Common IRD items include retirement accounts, uncashed paychecks, and installment notes.
A beneficiary of a traditional inherited IRA has Income in Respect of a Decedent (IRD) equal to the fair market value of the account at the time of the owner's death. This IRD is treated as ordinary income upon withdrawal. If federal estate tax was paid, a "691(c) deduction" may be claimed.
When an IRA owner dies before reaching retirement age (specifically, before their Required Beginning Date for RMDs, which is now generally 73 or 75) and the beneficiary is over 65, the rules depend heavily on whether the beneficiary is a spouse or a non-spouse.
In 2020 and later, options for a beneficiary who is not the spouse of the deceased account owner depend on whether they are an "eligible designated beneficiary." An eligible designated beneficiary is:
- Spouse or minor child of the deceased account holder
- Disabled or chronically ill individual
- Individual who is not more than 10 years younger than the IRA owner or plan participant
An eligible designated beneficiary may
- Take distributions over the longer of their own life expectancy and the employee's remaining life expectancy, or
- Follow the 10-year rule (if the account owner died before that owner's required beginning date)
Designated beneficiary (not an eligible designated beneficiary)
10-year rule: If a beneficiary is subject to the 10-year rule,
- Empty the entire account by the end of the 10th year following the year of the account owner's (or eligible designated beneficiary's) death
Please see the IRS topic Retirement Topics - Beneficiary and this TurboTax Blog for more information.
[Edited 02/04/26| 4:23pm PST]
@user17702236067 (edited)
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