Updated October 16, 2026. Quick answer: Pennsylvania’s Department of Revenue says payments from an eligible Pennsylvania retirement plan made to the estate or designated beneficiary of a participant “by reason of the participant’s death are not included as taxable compensation”, and the guide’s Traditional IRA entry lists the same death payments among the exceptions to IRA withdrawals being includable in income, without separating spouse from non-spouse beneficiaries.
Pennsylvania at a glance
| Item | What the documents say |
|---|---|
| How the state taxes retirement-account income | Retirement distributions after retirement age are not taxed as compensation; premature IRA withdrawals are |
| Do the state’s documents address beneficiaries? | Addressed: payments to the estate or designated beneficiary by reason of the participant’s death are not taxable compensation, and the Traditional IRA entry lists the same exception |
| Retirement exclusion or credit | Not a dollar exclusion: qualifying retirement plan distributions after retirement age are not taxable compensation |
| Rate in the documents read | 3.07% (the Department prints 3.07 percent) |
| State inheritance or estate tax | Pennsylvania has its own inheritance tax: see CMG’s Pennsylvania inheritance tax page |
| Changed for 2026? | The documents read do not address any change for 2026 |
What the Pennsylvania documents say
The Gross Compensation guide says a “premature withdrawal from a regular IRA or Roth IRA is taxable compensation” to the extent it exceeds previously taxed contributions. Retirement distributions after retirement age are not taxed as compensation, and the guide frames that rule around the plan participant’s own retirement age.
On death, the guide covers payments to the estate or designated beneficiary of a participant: when paid by reason of the participant’s death they “are not included as taxable compensation”. It lists “Income in respect of a decedent” among items that are never taxable as Pennsylvania compensation, while noting that income classified as IRD at the federal level may be taxable as another class of income, such as interest.
The Department’s personal income tax page says tax is levied at the rate of 3.07 percent, and lists Inheritance Tax as a separate tax type.
The federal 10-year rule and your Pennsylvania 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 Pennsylvania’s own death taxes, see Pennsylvania inheritance tax.
What the documents do not say
- The guide does not separate spouse from non-spouse beneficiaries; its Traditional IRA entry lists payments to the estate or designated beneficiary by reason of the participant’s death as an exception to IRA withdrawals being includable in income.
- No estate-tax or IRD deduction is described.
- The inheritance tax is not described in the documents read; see CMG’s Pennsylvania inheritance tax page.
Common mistakes
- Assuming Pennsylvania’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 Pennsylvania preparer.
Related: state tax on inherited IRA withdrawals, state by state, whether Pennsylvania taxes 401(k) and IRA withdrawals, Pennsylvania retirement taxes, Pennsylvania inheritance tax, inherited IRA rules, spouse versus non-spouse beneficiary rules, and state withholding on retirement withdrawals.
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Answer againSources
- PA Personal Income Tax Guide: Gross Compensation (DSM-12): https://www.pa.gov/content/dam/copapwp-pagov/en/revenue/documents/formsandpublications/papersonalincometaxguide/documents/pitguide_grosscompensation.pdf
- Personal Income Tax: https://www.pa.gov/agencies/revenue/resources/tax-types-and-information/personal-income-tax
- 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.