Updated October 16, 2026. Quick answer: California’s documents read describe no exclusion for an inherited IRA: Publication 1005 words its IRA rule around the owner’s own contributions, and the Form 540 booklet says the federal estate tax paid on income in respect of a decedent “is not deductible for California”.
California at a glance
| Item | What the documents say |
|---|---|
| How the state taxes retirement-account income | Taxed as income; no IRA exclusion in the documents read |
| Do the state’s documents address beneficiaries? | Narrowly: federal estate tax paid on income in respect of a decedent is not deductible for California |
| Retirement exclusion or credit | None for IRA distributions in the documents read; Publication 1005 lists a separate military retirement exclusion |
| Rate in the documents read | Top bracket prints 12.30%, plus a 1% Behavioral Health Services Tax on taxable income over $1,000,000 |
| State inheritance or estate tax | Not mentioned in the documents read |
| Changed for 2026? | The documents read cover the 2025 tax year and do not say what changes for 2026 |
What the California documents say
FTB Publication 1005 sets California’s rule for IRA distributions around the owner’s own contributions: “IRA distribution is fully taxable if your IRA contributions were fully deductible”. It does not mention inherited IRAs.
The Form 540 booklet is where decedents come up. Its Schedule CA instruction treats federal estate tax paid on income in respect of a decedent as not deductible for California, and it gives no exclusion for a beneficiary’s distributions.
The booklet’s rate schedule prints a top bracket of 12.30% and a 1% Behavioral Health Services Tax on taxable income over $1,000,000.
The federal 10-year rule and your California 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 California’s own death taxes, see California inheritance tax.
What the documents do not say
- Publication 1005 does not mention inherited IRAs or beneficiaries receiving IRA distributions.
- The California statute was not readable this session, so no statute section is cited.
- The documents read do not say how the owner-contribution rule applies to a beneficiary.
Common mistakes
- Assuming California’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 California preparer.
Related: state tax on inherited IRA withdrawals, state by state, whether California taxes 401(k) and IRA withdrawals, California retirement taxes, California inheritance tax, inherited IRA rules, spouse versus non-spouse beneficiary rules, and state withholding on retirement withdrawals.
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Answer againSources
- 2025 FTB Publication 1005 Pension and Annuity Guidelines: https://www.ftb.ca.gov/forms/2025/2025-1005-publication.pdf
- 2025 California Form 540, Forms & Instructions, Personal Income Tax Booklet: https://www.ftb.ca.gov/forms/2025/2025-540-booklet.pdf
- 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.