Are inherited Ira stepped up?

1. The technical rule: IRAs are IRD, not stepped‑up capital assets

The tax code treats amounts in traditional retirement accounts as “income in respect of a decedent” (IRD), so heirs inherit a tax character — ordinary income on distribution — rather than a new cost basis that resets gains to fair market value at death; the IRS’s Publication 590‑B and specialists consistently state inherited traditional IRAs and similar retirement plans do not receive a basis step‑up ^{[1] [3] [4]}.

2. What that means in practice for heirs

If an heir withdraws money from a traditional inherited IRA they will report the distribution as ordinary income (unless the account contained nondeductible basis that must be tracked separately), so there’s no capital gains benefit from a “step‑up” at death — contrast this with stocks or real estate, which typically receive a stepped‑up basis to fair market value on the decedent’s date of death ^{[1] [5] [2]}.

3. Roth IRAs and perceived exceptions

Roth IRAs do not get a step‑up in the conventional capital‑gains sense but can deliver tax‑free distributions to beneficiaries if the Roth has met holding‑period and other qualifying rules; some advisors therefore treat Roths as effectively tax‑favored for heirs even though the legal basis mechanics differ from a stepped‑up taxable account ^{[3] [6]}.

4. Why confusion persists in reporting and advice

Mainstream summaries about “step‑up in basis” often generalize to “inherited assets,” leading to mistaken takeaways when writers conflate taxable brokerage accounts (which usually step up) with tax‑deferred retirement accounts (which do not); forums and some planning blogs amplify inconsistent language and examples, producing conflicting headlines and reader confusion (examples: contradictory blog snippets and forum posts) ^{[7] [8] [9]}.

5. Strategies, tradeoffs and the advisers’ incentives

Financial firms and planners understandably advise between spending down traditional IRAs, converting to Roths, or holding taxable accounts to capture step‑up benefits — these are real planning levers but also align with product and advisory business incentives, so planners’ recommendations should be evaluated against tax rules and the heir’s likely tax bracket and timeline ^{[10] [11] [12]}.

6. Bottom line and reporting limitations

Bottom line: inherited traditional IRAs and tax‑deferred plans do not receive a stepped‑up cost basis; heirs pay ordinary income tax on distributions (IRS Pub. 590‑B and multiple tax guides) while Roths remain a separate, tax‑favored category though not a “step‑up” in the classic capital‑gains sense ^{[1] [3] [13]}. This analysis relies on the cited sources; if legislation or IRS guidance changed after those publications, that would alter the conclusion and is not covered in the reporting provided ^{[2] [6]}.