If the amounts distributed from the inherited IRA were never taxed in Massachusetts, then they are taxable on a Massachusetts return upon distribution. According to this Massachusetts webpage:
Included in your Massachusetts gross income for the year paid:
- Contributions you made to a traditional IRA plan. For federal purposes, you can claim either all or part of the contribution as a deduction on U.S. Form 1040 if certain criteria are met. However, Massachusetts does not allow a deduction for these contributions.
- Distributions from an IRA account made to you. For Massachusetts purposes however, distributions made are excluded from gross income if these distributions equal your Massachusetts previously taxed contributions. If you're a Massachusetts resident but also a beneficiary of a non-Massachusetts IRA, the entire IRA distribution is taxable since no Massachusetts tax was ever paid on the contributed income.
@dklay
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