Updated October 16, 2026. Quick answer: Oregon taxes IRA withdrawals as income and its documents read do not name inherited IRAs: OR-17 says “Oregon taxes any taxable IRA distribution you received during the year”, its pension subtraction is for federal pensions, its IRA-related subtractions are narrow, and income in respect of a decedent has its own addition rule when federal estate tax was paid on it.
Oregon at a glance
| Item | What the documents say |
|---|---|
| How the state taxes retirement-account income | Taxed as income; for full-year residents Oregon taxes any taxable IRA distribution received during the year |
| Do the state’s documents address beneficiaries? | Partly: income in respect of a decedent (IRD) has an addition rule for federal estate tax; inherited IRAs are not named |
| Retirement exclusion or credit | No general IRA exclusion; narrow subtractions exist for previously taxed IRA contributions made as a nonresident (code 327), previously taxed IRA conversions (code 348) and U.S. government interest in IRA or Keogh distributions (code 331); the federal pension subtraction (code 307) applies to federal pensions, including benefits paid to a retiree’s beneficiary |
| Rate in the documents read | 2025 chart for single filers: $10,627 plus 9.9% of the excess over $125,000; 8.75% applies from $50,000 to $125,000 |
| State inheritance or estate tax | OR-40 instructions: Oregon has an estate transfer tax on estates valued at $1 million or more, paid by the estate on Form OR-706 |
| Changed for 2026? | No 2026 change to this rule is stated in the documents read |
What the Oregon documents say
The Oregon income tax guide treats an IRA withdrawal as taxable income for a full-year resident: “Oregon taxes any taxable IRA distribution you received during the year”. It adds that Oregon taxes amounts converted from a traditional IRA into a Roth IRA that are reported in federal income.
The pension subtraction, ORS 316.680(1)(e), is for federal pension income and “includes benefits paid to the retiree or the beneficiary”. It is a federal pension rule, not an IRA rule. OR-17 separately lists narrow IRA-related subtractions: previously taxed contributions made while a nonresident (code 327), previously taxed IRA conversions (code 348) and U.S. government interest in IRA or Keogh distributions (code 331).
Income in respect of a decedent has its own Oregon rule. Federal estate tax on that income is deducted on the federal return, and if any of that tax is on income Oregon does not tax, “you must show an addition on your Oregon return”. ORS 316.680(2)(c) names the amount as “any federal estate taxes allocable to income in respect of a decedent” not taxable by Oregon.
The OR-40 instructions separate the estate’s tax from the heir’s: the estate tax is paid by the estate on Form OR-706, “not by the individuals receiving the inheritance”. The 2025 rate chart prints $10,627 plus 9.9% of the excess over $125,000 for single filers.
The federal 10-year rule and your Oregon 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 Oregon’s own death taxes, see Oregon estate tax.
What the documents do not say
- The documents read do not use the words inherited IRA or name a non-spouse IRA beneficiary.
- They do not say how the income in respect of a decedent addition applies to a particular inherited IRA withdrawal; the formula is stated for federal estate tax on that income in general.
Common mistakes
- Assuming Oregon’s rule for your own retirement income also covers an account you inherited: read whether its documents address beneficiaries, and confirm the point with an Oregon preparer.
Related: state tax on inherited IRA withdrawals, state by state, whether Oregon taxes 401(k) and IRA withdrawals, Oregon retirement taxes, Oregon estate tax, inherited IRA rules, spouse versus non-spouse beneficiary rules, and state withholding on retirement withdrawals.
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Answer againSources
- Publication OR-17, 2025 Oregon Individual Income Tax Guide: https://www.oregon.gov/dor/forms/FormsPubs/publication-or-17_101-431_2025.pdf
- 2025 Form OR-40 Instructions: https://www.oregon.gov/dor/forms/FormsPubs/form-or-40-inst_101-040-1_2025.pdf
- Oregon Revised Statutes Chapter 316: https://www.oregonlegislature.gov/bills_laws/ors/ors316.html
- 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.