In the USA are inherited pensions taxed?

1. What “inherited pension” really means for tax purposes

The term “pension” can refer to employer pensions, annuities, 401(k)s and IRAs, and tax treatment follows the underlying contract: amounts that represent a return of after‑tax contributions are not taxable, while distributions of pre‑tax contributions and earnings generally are taxed as ordinary income unless the account is a qualified Roth vehicle ^{[2] [4]}.

2. Traditional (pre‑tax) accounts: income tax on withdrawals by beneficiaries

If the decedent’s retirement account was funded with pre‑tax dollars — typical for traditional IRAs, 401(k)s and many pensions — beneficiaries must include taxable distributions in their gross income when received, and choosing a lump sum versus taking distributions over time changes when tax is due and can affect the beneficiary’s tax bracket ^{[1] [5]}.

3. Roth accounts and when inherited Roth money is tax free

Inherited Roth IRAs and Roth-designated plan distributions are generally tax‑free for beneficiaries if the Roth account meets the five‑year aging rule; withdrawals of contributions are tax‑free but earnings can be taxable if the Roth is less than five years old at the time of distribution, so beneficiaries should verify the account’s start date before assuming tax-free status ^[1].

4. Timing rules matter: RMDs, the 10‑year rule and penalty risk

Recent regulatory changes and IRS guidance mean beneficiaries face two kinds of timing rules: required minimum distributions over a beneficiary’s life in some cases, and the 10‑year payout requirement for many inherited accounts — failure to take required distributions risks hefty excise taxes (though the IRS has at times waived penalties), and spreading withdrawals over years can be a legitimate way to manage tax brackets ^{[3] [6] [7]}.

5. Pensions and annuities paid as periodic benefits: taxable portion and withholding

Periodic pension or annuity payments received by beneficiaries are treated much like wages for withholding and may be subject to federal income tax on the taxable portion, determined under IRS rules that separate return‑of‑investment from taxable earnings using the general or simplified methods (beneficiaries can submit Form W‑4P to adjust withholding) ^{[2] [4]}.

6. Estate and inheritance taxes versus income tax: separate concepts and state variability

There is no federal “inheritance tax” applied to beneficiaries as income, though large estates can trigger federal estate tax and a handful of states impose inheritance taxes or tax pension income differently; beneficiaries must therefore look at both federal income rules and state rules because some states exempt pension income while others tax it ^{[8] [9]}.

7. Planning, advisers and potential conflicts of interest

Tax and financial advisers, law firms and custodians offer strategies — Roth conversions, spreading distributions, charitable rollovers — that can reduce future tax, but those same providers may have incentives to sell services or products; authoritative IRS publications and notices should be the baseline, with advisers used to implement tailored plans ^{[6] [3]}.

8. What the reporting shows and the limits of available sources

Public IRS guidance and mainstream tax advisers make clear the core rules (taxable vs. tax‑free account types, RMD/10‑year rules, withholding) but specifics for an individual beneficiary — state law impacts, exceptions for surviving spouses, or special treaty rules for foreign pensions — require looking at the exact plan documents and state statutes, which the summarized sources do not exhaustively cover ^{[1] [10] [3]}.