Distributions from an IRA are treated as ordinary income. Income to the estate from an IRA is reportable on Form 1041 line 8. However, this Distributable Net Income is typically passed through to the estate beneficiaries as Income in Respect of a Decedent and such income distributed to estate beneficiaries is reported to beneficiaries on Schedule K-1 (Form 1041) box 5 as Other Portfolio and Nonbusiness Income and taken as a deduction on Form 1041 line 18, so it ultimately does not get taxed at estate tax rates but is instead taxed at the beneficiaries' marginal tax rates.
The estate income tax brackets for the final taxable income reported on Form 1041 line 22 are:
$0 $2,550 15%
$2,550 $5,950 25%
$5,950 $9,050 28%
$9,050 $12,400 33%
$12,400 ----- 39.6%
So even moderate amounts of estate-taxable income are taxed at 39.6%.
To avoid having to keep an estate open to receive yearly distributions from the IRA, the estate would usually want to split the IRA into inherited IRAs for the benefit of each of the estate beneficiaries and distribute these inherited IRAs intact, without any distributions from the IRA being made to the estate. Estate beneficiaries would be successor beneficiaries so they would still have to base RMDs on the estate being the original beneficiary of the IRA (beneficiary not an individual).
