What Is Income in Respect of a Decedent (IRD)?

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. Taxes on IRD are owed by the individual beneficiary or entity that inherits this income.

However, IRD also counts toward the decedent’s estate for federal estate tax purposes, potentially drawing a double tax hit. Fortunately, the beneficiary may be able to take a 澳洲幸运5官方开奖结果体彩网:tax deduction for the estate tax paid on IRD. The 澳洲幸运5官方开奖结果体彩网:beneficiary must declare IRD as🌳 income for the year in which 🍸they receive it.

Unders🧔tanding Income in Respect of a Decedent (IRD)

IRD is defined in 澳洲幸运5官方开奖结果体彩网:Internal Revenue Code Section 691. Sources of income include the following:

• Uncollected salaries
• Wages
• Bonuses
• Commissions
• Vacation pay
• Sick pay
• Uncollected rent
• 澳洲幸运5官方开奖结果体彩网:Retirement income

Other sources of IRD are:

• Payments for crops
• Interest and 澳洲幸运5官方开奖结果体彩网:dividends accrued
• Distributions from certain 澳洲幸运5官方开奖结果体彩网:deferred compensation and 澳洲幸运5官方开奖结果体彩网:stock option plans
• 澳洲幸运5官方开奖结果体彩网:Accounts receivable of a 澳洲幸运5官方开奖结果体彩网:sole proprietor
• Gains from the sale of property (if the sale is deemed to occur before death, but proceeds are not collected until after death)

How IRD Is Taxed

IRD is taxed in the same way it would have been had the decedent received the money while living. For example, capital gains are taxed at the 澳洲幸运5官方开奖结果体彩网:capital gains rate, and uncollected compensation is taxed as 澳洲幸运5官方开奖结果体彩网:ordinary income on the beneficiary’s tax return for the year they received it. There is no 澳洲幸运5官方开奖结果体彩网:step-up in basis for IRDs.

How IRD Works for IRAs and 401(k)s 

Other common examples of IRD are distributions from tax-deferred 澳洲幸运5官方开奖结果体彩网:qualified retirement plans (such as 401(k)s and traditional 澳洲ꦅ幸运5官方开奖结果体彩网:individual retirement ac💮counts (IRAs)) that are passed on to a beneficiary. If an individual dies leaving a $1 million IRA to their beneficiary, the beneficiary will be responsible for paying taxes on any distributions made from the account.

The beneficiary may have to start taking 澳洲幸运5官𝔍方开奖结果体彩网:required minimum distributions☂ (RMDs) at a certain point.

Spouses

A living spouse who is the sole beneficiary has certain rights not granted to another type of beneficiary. For example, a spouse can roll over the decedent’s IRA assets into their own IRA and postpone RMDs until age 73. Any beneficiary, spouse or otherwise, must follow 澳洲幸运5官方开奖结果体彩网:specific RMD rules and is liable for applicable taxes on distributions.

The age for RMDs was raised to 72 with the passage of the Setting Everyജ Community Up For Reti🍎rement Enhancement (SECURE) Act in December 2019. Then, in December 2022, the passage of the 澳洲幸运5官方开奖结果体彩网:SECURE 2.0 Act raised the age to 73.

Impact on Estates

If the decedent died on or after reaching the age of RMDs, their RMD for the year of death may factor into their estate (for instance, if no specific beneficiaries were designated in the account file/paperwork for the retirement account where it was held). If the amount of the RMD were to push the decedent’s estate beyond the federal exclusion, an 澳洲幸运5官方开奖结果体彩网:estate tax would kick in. The federal exclusion amount for 2025 is $13.99 million.

To try to minimize this impact, individuals and married couples employ 澳洲幸运5官方开奖结果体彩网:estate planning strategies that transfer assets to trusts. One option is a 澳洲幸运5官方开奖结果体彩网:credit shelter trust, whi꧅ch postpones estate taxes until the death of t🦹he surviving spouse.

The Bottom Line

IRD is income that is ow⛎ed to an individual who dies before receivinꦿg it. If a beneficiary receives this money, they will owe taxes on it.

If the IRD generates a tax liability for the decedent’s estate, a beneficiary may be able to claim a deduction for estate taxes connected to 🎃the IRD amount.