Updated October 16, 2026. Quick answer: New York addresses beneficiaries directly: the IT-201 instructions let a person who received a decedent’s pension and annuity income subtract it if the decedent would have qualified, regardless of the beneficiary’s age, up to the $20,000 exclusion shared among the beneficiaries.
New York at a glance
| Item | What the documents say |
|---|---|
| How the state taxes retirement-account income | Taxed as income, with a pension and annuity income exclusion that includes IRA payments |
| Do the state’s documents address beneficiaries? | Addressed: a Beneficiaries paragraph tests the decedent, not the beneficiary’s age, and splits the exclusion among beneficiaries |
| Retirement exclusion or credit | Up to $20,000; the decedent’s amount is reduced by what the decedent used and allocated among beneficiaries by value inherited |
| Rate in the documents read | 4% up to 10.9% on taxable income over $25,000,000 |
| State inheritance or estate tax | Not mentioned in the documents read |
| Changed for 2026? | The documents read are the 2025 instructions and do not say whether anything changes for 2026 |
What the New York documents say
The IT-201 instructions list “periodic and lump-sum payments from an IRA, but not payments derived from contributions made after you retired” among the pension and annuity income that can be excluded, and cap the exclusion: you “may not take a pension and annuity income exclusion that exceeds $20,000”.
A separate Beneficiaries paragraph covers people who “received pension and annuity income as a beneficiary”. The decedent’s $20,000 is reduced by any amount used on the decedent’s own return and, if there are several beneficiaries, “must be allocated among the beneficiaries” in proportion to the value of the pensions and annuities each inherited.
The rate schedule in the instructions runs from 4% up to 10.9% on taxable income over $25,000,000.
The federal 10-year rule and your New York 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 New York’s own death taxes, see New York inheritance tax.
What the documents do not say
- The Beneficiaries paragraph does not use the words inherited IRA; the IRA appears in the list of qualifying payments.
- They say nothing about a deduction or credit for estate tax or income in respect of a decedent.
- The documents read do not mention a New York state inheritance tax.
Common mistakes
- Assuming New York’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 New York preparer.
Related: state tax on inherited IRA withdrawals, state by state, whether New York taxes 401(k) and IRA withdrawals, New York retirement taxes, New York 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 IT-201, Full-Year Resident Income Tax Return (Tax Year 2025): https://www.tax.ny.gov/pdf/current_forms/it/it201i.pdf
- Instructions for Form IT-225, New York State Modifications (Tax Year 2025): https://www.tax.ny.gov/pdf/current_forms/it/it225i.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.