Updated October 16, 2026. Quick answer: Montana gives an inherited IRA withdrawal no general IRA exclusion: the Form 2 changes overview lists the partial pension, annuity, and IRA exemption among subtractions repealed as of January 1, 2024, and the documents read do not mention inherited IRAs.
Montana at a glance
| Item | What the documents say |
|---|---|
| How the state taxes retirement-account income | Taxed as income; the partial pension, annuity, and IRA exemption was repealed as of January 1, 2024 |
| Do the state’s documents address beneficiaries? | Not addressed for inherited IRAs; the only retirement-related beneficiary wording is a military survivor benefit subtraction for resident beneficiaries |
| Retirement exclusion or credit | None for IRAs; a separate subtraction of up to 50% applies to certain military income, including military survivor benefits received by resident beneficiaries who meet residency requirements |
| Rate in the documents read | 2025 ordinary income: 4.7% below $21,100 and 5.9% at $21,100 or greater for single filers; 4.7% below $42,200 for married filing jointly |
| State inheritance or estate tax | Not mentioned in the documents read |
| Changed for 2026? | House Bill 337 lowered the top marginal tax rate and increased the income brackets for tax year 2026, and lowers the top rate again beginning in tax year 2027; the instructions print a 2026 table of 4.7% below $47,500 and 5.65% at $47,500 or greater for single filers, and 4.7% below $95,000 and 5.65% at $95,000 or greater for married filing jointly |
What the Montana documents say
The overview of changes to Form 2 says several subtractions “were repealed as of January 1, 2024”, and its list includes the partial pension, annuity, and IRA exemption. A Montana filer’s IRA withdrawal therefore starts from federal taxable income with no IRA subtraction in the documents read.
The 2025 instructions name IRA distributions where they explain withholding: “If you received pensions, retirement income, or IRA distributions”, the Montana tax withheld is reported in Box 14 of the federal Form 1099-R.
The one beneficiary subtraction is military. Beneficiaries under the Defense Department’s Survivor Benefit Plan “can exempt up to 50% of their military survivor benefits”. The instructions limit it to resident beneficiaries who meet residency requirements, and Form WMRE goes with the return. It is a rule for survivor benefit plan payments, not for inherited IRAs.
The 2025 rate table prints 4.7% below $21,100 and 5.9% at $21,100 or greater for single filers, and 4.7% below $42,200 for married filing jointly. On changes, the instructions say “House Bill 337 lowered the top marginal tax rate” and increased the income brackets for tax year 2026; the 2026 table on page 42 prints 4.7% below $47,500 and 5.65% at $47,500 or greater for single filers, and 4.7% below $95,000 and 5.65% at $95,000 or greater for married filing jointly.
The federal 10-year rule and your Montana 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 Montana’s own death taxes, see Montana inheritance tax.
What the documents do not say
- The documents read do not mention inherited accounts or beneficiaries of retirement accounts.
- The overview of changes is undated, so the repeal is stated as of January 1, 2024, the date it prints.
- They say nothing about a deduction or credit for estate tax or income in respect of a decedent.
Common mistakes
- Assuming Montana’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 Montana preparer.
Related: state tax on inherited IRA withdrawals, state by state, whether Montana taxes 401(k) and IRA withdrawals, Montana retirement taxes, Montana inheritance tax, inherited IRA rules, spouse versus non-spouse beneficiary rules, and state withholding on retirement withdrawals.
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Answer againSources
- 2025 Montana Form 2 Instructions (Montana Individual Income Tax Return): https://revenuefiles.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2025_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf
- Overview of Changes to Form 2: https://revenue.mt.gov/files/Forms/Montana-Individual-Income-Tax-Return-Form-2/Form-2-Changes.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.