Distributions received by a beneficiary are taxable income to the beneficiary. If the distribution occurred in 2023, you'll receive a code-4 Form 1099-R near the end of January 2024 that you'll need to report on your 2023 tax return.
Yes, for most people it makes sense for a beneficiary subject to the 10-year rule to take more than the RMD so as to avoid a large distribution in year 10 that could result in paying taxes at a higher marginal tax rate.
Nothing in Illinois Pub 120 suggests that it is taxable in Illinois, but that publication makes no specific mention of distributions from inherited accounts. TurboTax's state module for Illinois should handle this for you. If you used the CD/download version of TurboTax for 2022, you could use that to simulate your 2023 tax return to see how Illinois handles it.
