A Third of Adult Children Don’t Know if They’ll Owe Taxes on an Inheritance. Here’s the Answer

The short answer: for most heirs, no federal income tax on the money itself. The long answer is where people lose thousands.

A 2026 Morning Consult survey commissioned by Kiplinger found one-third of adult children are unsure whether they would owe taxes on an inheritance. The answer depends entirely on what got inherited: a checking account, a house, a brokerage account, or a traditional IRA each triggers a different rule.

No Federal Inheritance Tax Exists

The United States does not levy a federal inheritance tax on the person receiving the money. The estate can owe federal estate tax, but that bill is paid by the estate before anything hits the beneficiary. It applies only to estates above the lifetime exemption, which sits in the multi-millions per person. Ninety-nine-plus percent of families never touch it.

A handful of states, including Pennsylvania, New Jersey, Kentucky, Maryland, Nebraska, and Iowa, run their own inheritance taxes with their own rates and exemptions. Where you live, and where the decedent lived, decides whether a state form is coming.

Cash, Houses, and Stocks: The Step-Up Rule

Inherit $200,000 in a savings account and it lands in your account tax-free at the federal level. You will owe tax only on future interest it earns.

Inherit a house or a taxable brokerage account and the step-up in basis applies: taxable investments generally receive a step-up in cost basis to fair market value on the date of death, which wipes away unrealized capital gains accumulated during the decedent’s lifetime.

A widow leaves her son 1,000 shares of stock she bought decades ago for $10 a share. On the day she dies the shares trade at $150. His new basis is $150. If he sells the next week at $152, his taxable gain is $2 per share, not $142. The four decades of appreciation vanish for tax purposes. Same logic applies to the family home: the basis resets to the appraised value at death, and heirs typically owe capital-gains tax only on appreciation from that date forward.

Inherited IRAs: Where the Bill Actually Lands

Retirement accounts do not get a step-up, and this is where the survey confusion becomes expensive. A traditional IRA or 401(k) is pre-tax money. Every dollar you pull out counts as ordinary income to you, taxed at your bracket, stacked on top of your salary.

Under the SECURE Act, many nonspouse beneficiaries of inherited traditional IRAs must fully distribute the account within 10 years, with required minimum distributions along the way. Miss an RMD and the IRS charges a 25% excise tax on the amount that should have been withdrawn, dropping to 10% if corrected promptly.

Suze Orman has emphasized this on her podcast. “If you don’t open up your inherited IRAs by September 30th after the year she has died, guess what? It’s automatically going to be based on the oldest beneficiary’s life,” she warned. Her fix for parents: “Just do a Roth retirement account. Roth, Roth, Roth. And if everything is in a Roth when you die, they’re fine.”

Worked Example: The 45-Year-Old Who Inherits $500,000

Assume a single filer earning $120,000 inherits her father’s $500,000 traditional IRA in 2026. She must drain it by year 10. If she waits until year 10 and takes it all at once, roughly $500,000 stacks on top of her $120,000 salary, pushing the top slice into the 35% federal bracket that starts at $250,526 for single filers. State income tax rides on top.

Before touching the account, it helps to see how the balance grows across the 10-year window while distributions are delayed. Plug in your own inherited-IRA balance and expected return:

What to Do Before You Touch a Dime

1. Get date-of-death valuations for every taxable asset. That number becomes your new basis.
2. For an inherited IRA, retitle it as an inherited IRA at a brokerage and calendar the 10-year drain.
3. Check whether the decedent’s state, or yours, has an inheritance tax before you spend anything.

The heirs who get hurt are almost always the ones who moved fast. Run this math with a CPA or fiduciary advisor before the first check clears.

Data Sources

• The Hidden Costs of Inheriting an Investment Portfolio, Kiplinger: survey stat, step-up in basis, 10-year rule, 25% excise tax figure.
• IRS 2025 federal income tax brackets: single-filer bracket thresholds used in worked example.
• Suze Orman’s Women & Money podcast: quotes on September 30 inherited-IRA deadline and Roth planning.
• Morningstar (Sep. 18, 2026): current context on ongoing inheritance-tax policy debate.

This article is for informational purposes only and is not tax, legal, or investment advice. Consult a qualified tax professional about your specific situation.

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