I received half of my dad's IRA when he passed away, I took it and put it into a money market account that earned interest do I need to claim this on my state taxes

[ee-ea]

You pay on the money market interest to the Feds and to the state tmoney market

[VolvoGirl]

When did he die?  You probably will get a 1099R from the IRA account.  It will probably be taxable to you.  What you do with the money doesn't matter.  If you put it in the bank the interest is taxable both federal and state.  

[Opus 17 · Accepted solution]

Let's clarify.  You kept the money in an IRA (with the same broker or a rollover to a different broker) but changed the investment strategy?  Or you withdrew the money from the IRA and invested it someplace else.  

All withdrawals from IRAs are taxable, even if they are inherited, because the original owner never paid tax on the deposits.  You don't pay a penalty for early withdrawal, even if you are under 59-1/2, because it was an inherited IRA, but you still pay the income tax.  It doesn't matter what you did with the money after.  Separately, you will be taxed on any income that your new investments made.  You will get a 1099-R from the IRA and you may get a 1099-INT, 1099-MISC, 1099-DIV, 1099-B, or a combination, from the new investment.

You had the option of leaving the funds in the IRA for up to 10 years and withdrawing the money more gradually to spread out the taxes.  Depending on the amount and your other income, withdrawing it all at once might have put you into a significantly higher tax bracket this year.