Updated October 16, 2026. Quick answer: Arizona’s documents read do not mention inherited IRAs and list no subtraction for IRA income, so a withdrawal that sits in federal adjusted gross income is taxed at the flat rate in the Form 140 booklet: “Multiply line 45 by 2.5% (.025) and enter the result”.
Arizona at a glance
| Item | What the documents say |
|---|---|
| How the state taxes retirement-account income | Flat-rate tax on income in federal adjusted gross income; no IRA subtraction in the documents read |
| Do the state’s documents address beneficiaries? | Not addressed: the documents read do not mention inherited accounts |
| Retirement exclusion or credit | A subtraction of up to $2,500 for U.S. Government and Arizona government pensions only; it does not cover IRA distributions |
| Rate in the documents read | 2.5% flat (Form 140 line 46) |
| State inheritance or estate tax | Not mentioned in the documents read |
| Changed for 2026? | The 2025 booklet says Arizona had not yet adopted federal tax law changes made after January 1, 2025, and that the legislature will address the issue during 2026 |
What the Arizona documents say
The 2025 Form 140 booklet starts from federal adjusted gross income and then tells filers to “exclude income that Arizona law does not tax”. IRA distributions are not on its list of income Arizona does not tax.
The only pension subtraction the booklet names is for U.S. Government and Arizona state or local government pensions: “subtract the amount you received or $2,500, whichever is less”. A.R.S. 43-1022 prints the same ceiling as “Benefits, annuities and pensions in an amount totaling not more than $2,500”.
The federal 10-year rule and your Arizona tax year
IRS Publication 590-B says a beneficiary may be required to take the entire account balance by the “end of the 10th year following the year of the owner’s death”, with exceptions for certain beneficiaries. Because the balance generally has to come out within that window, the timing of each withdrawal decides which tax year it lands in. See the 10-year rule and annual RMDs, lump sum versus spreading withdrawals and inherited IRA rules.
Withholding and other state taxes
Whether a state withholds from a withdrawal is a separate rule: see state withholding on retirement withdrawals. For Arizona’s own death taxes, see Arizona inheritance tax.
What the documents do not say
- The documents read do not mention inherited accounts or beneficiaries of retirement accounts.
- They do not say whether a survivor or beneficiary of a government pension can use the $2,500 subtraction.
- They say nothing about a deduction or credit for estate tax or income in respect of a decedent.
Common mistakes
- Assuming Arizona’s rule for your own retirement income also covers an account you inherited: read whether its documents address beneficiaries, and confirm the point with a Arizona preparer.
Related: state tax on inherited IRA withdrawals, state by state, whether Arizona taxes 401(k) and IRA withdrawals, Arizona retirement taxes, Arizona inheritance tax, inherited IRA rules, spouse versus non-spouse beneficiary rules, and state withholding on retirement withdrawals.
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Answer againSources
- Arizona Form 140 Resident Personal Income Tax Booklet (2025): https://azdor.gov/sites/default/files/document/FORMS_INDIVIDUAL_2025_140Booklet.pdf
- A.R.S. 43-1022 Subtractions from Arizona gross income: https://www.azleg.gov/ars/43/01022.htm
- IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs): https://www.irs.gov/pub/irs-pdf/p590b.pdf
Sources: the primary documents linked above, read on October 16, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.