Understanding Income in Respect of a Decedent (IRD): Essential Guide for Beneficiaries

Explore the key concepts, taxation rules, and special regulations surrounding Income in Respect of a Decedent (IRD) to ensure compliance and maximize potential deductions.

{“main”:[" Understanding Income in Respect of a Decedent (IRD): Essential Guide for Beneficiaries",“Income in Respect of a Decedent (IRD) refers to untaxed income that a decedent had earned or had a right to receive during their lifetime. This income is taxed to the individual beneficiary or entity that inherits it.”,“However, IRD also counts toward the decedent’s estate for federal estate tax purposes, potentially resulting in double taxation. Fortunately, beneficiaries may be able to claim a tax deduction for the estate tax paid on IRD. The beneficiary must declare IRD as income for the year they received it.”,"# Key Takeaways","- IRD refers to untaxed income that a decedent earned or had a right to receive during their lifetime.","- IRD is taxed as if the decedent was still alive.","- Beneficiaries are generally responsible for paying taxes on IRD income.","# Understanding IRD",“Income in Respect of a Decedent is defined in Internal Revenue Code, section 691. Sources of IRD can include:”,"- Uncollected salaries, wages, bonuses, and commissions","- Vacation pay and sick pay","- Uncollected rent and retirement income",“Other sources include:”,"- Payments for crops and accrued interest and dividends","- Distributions from certain deferred compensation and stock option plans","- Accounts receivable of a sole proprietor","- Gains from the sale of property if the sale occurred before death but proceeds were collected post-death",“IRD also encompasses any income from sales commissions and IRA distributions owed to the decedent at their time of death.”,"# Taxation of IRD",“IRD is taxed in the same way it would have been taxed if the decedent were alive. For instance, capital gains are taxed as capital gains, and uncollected compensation is taxed as ordinary income on the beneficiary’s tax return for the year it was received. Importantly, there is no step-up in basis for IRDs.”,"# How IRD Works for IRAs and 401(k)s",“Common examples of IRD include distributions from tax-deferred retirement plans such as 401(k)s and traditional individual retirement accounts (IRAs). For instance, if an individual leaves behind a $1 million IRA, the beneficiary will be responsible for paying taxes on any distributions made from the account.”,“Beneficiaries may need to start taking required minimum distributions (RMDs) at a certain time. Spouses who are sole beneficiaries have certain privileges not granted to other types of beneficiaries, such as rolling over the decedent’s IRA assets into their own IRA and postponing RMDs until age 73. Each beneficiary has specific RMD rules to follow and is liable for applicable taxes.”,“Note: The age for beginning RMDs used to be 70½ but increased to 72 with the SECURE Act in December 2019, and further to 73 with the SECURE 2.0 Act in December 2022.”,“If the decedent died on or after reaching the age for RMDs, the RMD for the year of death will factor into their estate. If this pushes the estate value beyond the federal exclusion ($12.06 million in 2022 and $12.92 million in 2023), estate tax will bloom.”,“Individuals and married couples often employ estate-planning strategies to minimize this impact, transferring assets to trusts. One popular strategy is using a credit shelter trust, which delays estate taxes until the death of the surviving spouse.”,"# Reporting IRD",“As a beneficiary who received IRD, you’ll need to report it on your personal income tax return for the year you received it.”,"# Difference Between Inheritance and IRD",“Inheritance involves property you inherit from a decedent. IRD refers to income owed to the decedent but not received before their death \u2013 instead, the beneficiary receives it. For example, an inherited required minimum distribution from an IRA owed to a decedent will come to you. While you don’t owe taxes on the inheritance itself, you will owe taxes on any IRD received.”,"# Beneficiary Taxation on IRD as Required Minimum Distribution",“Beneficiaries are taxed on IRD from required minimum distributions just as the decedent would have been. For instance, an RMD from a traditional IRA treated as regular income for the decedent will adjust similarly based on the beneficiary’s income tax bracket.”,"# Final Thoughts",“IRD represents income owed to an individual who dies before receiving it. When a beneficiary receives this money, they owe taxes on it.”,“If IRD triggers a tax liability for the decedent’s estate, beneficiaries may claim deductions for estate taxes corresponding to the IRD amount.”]}

Related Terms: inheritance,, estate planning,, required minimum distribution, tax reporting.


  1. Internal Revenue Service. “Publication 559 Survivors, Executors, and Administrators”.
  2. Internal Revenue Service. “Section 691—Recipients of Income in Respect of Decedents”.
  3. Internal Revenue Service. “Retirement Plan and IRA Required Minimum Distribution FAQs”.
  4. U.S. Congress. “Consolidated Appropriations Act, 2023; Division T: SECURE 2.0 Act of 2022,” Page 817.
  5. Internal Revenue Service. “What’s New — Estate and Gift Tax.”

Get ready to put your knowledge to the test with this intriguing quiz!

--- primaryColor: 'rgb(121, 82, 179)' secondaryColor: '#DDDDDD' textColor: black shuffle_questions: true --- ## What does Income in Respect of a Decedent (IRD) refer to? - [ ] Income earned by a decedent while alive - [x] Income earned but not received by a decedent by the time of their death - [ ] Any income received by the decedent’s estate - [ ] Tax deductions received posthumously by the decedent ## For tax purposes, who reports the Income in Respect of a Decedent (IRD)? - [ ] The decedent’s ghost writer - [ ] The decedent while alive - [x] The decedent’s estate or beneficiaries - [ ] The IRS directly ## Which of the following can be classified as Income in Respect of a Decedent (IRD)? - [ ] Social Security benefits collected before death - [x] Uncollected wages due at the time of death - [ ] Life insurance proceeds - [ ] Settlements from posthumous lawsuits ## Is IRD subject to federal income tax? - [ ] No, it is always exempt from taxation - [x] Yes, it is subject to federal income tax - [ ] It depends on the state - [ ] Only if the estate value exceeds a certain threshold ## Which tax form might a beneficiary receive related to IRD? - [ ] Form W-9 - [x] Form 1099 - [ ] Form 1040 - [ ] Form 1098 ## Does IRD include any net operating losses (NOLs) carried over from the decedent? - [ ] Yes, always - [ ] No, never - [ ] Sometimes, depending on IRS approval - [x] No, since NOLs do not qualify as IRD ## How can an executor minimize the tax burden associated with IRD for the beneficiaries? - [ ] By seeking IRS exemption for the IRD - [ ] By reporting only a portion of the IRD - [x] By spreading the receipt of IRD over multiple years to reduce taxable income in any one year - [ ] By excluding IRD from the estate’s income tax return ## Does IRD include both ordinary income and capital gains? - [ ] No, only ordinary income qualifies as IRD - [ ] Sometimes, depending on IRS stipulations - [x] Yes, both ordinary income and capital gains qualify as IRD - [ ] No, only capital gains qualify as IRD ## When an estate or beneficiary receives IRD, how must it be reported? - [ ] It is reported as part of the decedent's final tax return - [x] It must be reported in the estate’s or beneficiary’s income tax return - [ ] It does not need to be reported - [ ] It should be reported twice to ensure accuracy ## When inheriting IRD, who is ultimately responsible for paying the taxes due? - [ ] No tax is due on inherited IRD - [ ] The decedent prior to their death - [ ] The IRS automatically pays the tax - [x] The estate or beneficiary receiving the IRD income