Updated October 16, 2026. Quick answer: Alabama’s documents read do not mention inherited IRAs: the Form 40 booklet sends IRA distributions to Schedule RS, whose $6,000 retirement exclusion asks “Is the primary taxpayer 65 or older and receives taxable retirement?” and its Beneficiaries paragraph is about a former employee’s pension or annuity, and separate exemptions cover retirement compensation paid to a designated beneficiary of an eligible firefighter or peace officer.
Alabama at a glance
| Item | What the documents say |
|---|---|
| How the state taxes retirement-account income | Taxed as income and reported on Schedule RS; the retirement exclusion is tested on the primary taxpayer’s age |
| Do the state’s documents address beneficiaries? | Narrowly: a Beneficiaries paragraph covers a former employee’s pension or annuity, not an IRA |
| Retirement exclusion or credit | Up to $6,000 per eligible taxpayer on Schedule RS when the primary taxpayer is 65 or older and receives taxable retirement income |
| Rate in the documents read | 2%, 4% and 5% brackets; single filers pay 5% on taxable income over $3,000 |
| State inheritance or estate tax | Not mentioned in the documents read |
| Changed for 2026? | The documents read are for tax year 2025 and do not say whether the retirement exclusion or rates change for 2026 |
What the Alabama documents say
The Form 40 booklet tells filers to use “pensions, annuities, IRA distributions” on Schedule RS to report fully or partially taxable amounts. Schedule RS is also where the retirement exclusion is figured.
The booklet’s Beneficiaries paragraph is about a former employee’s pension or annuity. It says that once the cost is recovered, “the entire amount the beneficiary receives is taxable for Alabama purposes”, and that a pension or annuity exempt to the former employee is exempt to the beneficiary too.
Schedule RS lets each taxpayer exclude up to $6,000 when the primary taxpayer is 65 or older and receives taxable retirement income. The Department’s rate FAQ prints “5% All taxable income over $3,000” for single filers, after 2% on the first $500 and 4% on the next $2,500.
The federal 10-year rule and your Alabama 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 Alabama’s own death taxes, see Alabama inheritance tax.
What the documents do not say
- The documents read do not mention inherited IRAs; the Beneficiaries paragraph is limited to a former employee’s pension or annuity.
- They do not say whether a beneficiary can use the $6,000 Schedule RS exclusion, which is framed around the primary taxpayer’s age.
- They say nothing about a deduction or credit for estate tax or income in respect of a decedent.
Common mistakes
- Assuming Alabama’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 Alabama preparer.
Related: state tax on inherited IRA withdrawals, state by state, whether Alabama taxes 401(k) and IRA withdrawals, Alabama retirement taxes, Alabama inheritance tax, inherited IRA rules, spouse versus non-spouse beneficiary rules, and state withholding on retirement withdrawals.
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Answer againSources
- Instructions for Form 40 (Resident Individual Income Tax Return) booklet, Tax Year 2025: https://www.revenue.alabama.gov/wp-content/uploads/2026/01/25f40bk.pdf
- Schedule RS (Form 40 or Form 40NR), Retirement Schedule, Tax Year 2025: https://www.revenue.alabama.gov/wp-content/uploads/2026/01/25schrsblk.pdf
- What is Alabama’s Individual Income Tax Rate? (FAQ): https://www.revenue.alabama.gov/faqs/what-is-alabamas-individual-income-tax-rate/
- 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.