One of the largest checks many people will ever receive comes from an inheritance. Unfortunately, one of the most misunderstood assets to inherit is an IRA.
I've seen beneficiaries accidentally create huge tax bills, miss required distributions, and lose planning opportunities simply because they didn't understand the rules.
If you've inherited an IRA from a parent, your first few decisions can have a lasting impact on how much you ultimately keep after taxes.
Here's what you should know before making a single withdrawal. (For the foundational rules behind all of this, see Rules Every Adult Child Should Know.)
Key takeaways
- Whether your parent had already started required minimum distributions (RMDs) before they died can change what is required of you as a beneficiary.
- Most adult children who inherit an IRA are subject to a 10-year rule: the account generally must be fully emptied by December 31 of the tenth year after the year of death.
- Some beneficiaries may also owe annual distributions during years one through nine, depending on the decedent's RMD status.
- Waiting until year 10 to take anything out can concentrate years of taxable growth into one or two tax years, which may push you into a higher bracket or raise Medicare premiums.
- A withdrawal strategy built around your income, tax bracket, and timeline can potentially reduce the taxes paid over the life of the account, though results vary by individual situation.
Step 1: Determine whether your parent had started taking RMDs
Before you can figure out what you owe or what flexibility you have, you need one piece of information: had your parent already started taking Required Minimum Distributions (RMDs)?
An RMD is the amount the IRS requires an account owner to withdraw from a traditional IRA each year once they reach a certain age. For most people today, that age is 73.
This distinction matters because the inherited IRA rules can differ depending on whether your parent passed away before or after reaching their Required Beginning Date. The IRS has clarified that for many non-spouse beneficiaries subject to the 10-year rule, annual distributions may be required if the original owner died after beginning RMDs, while the account still generally must be emptied by the end of year 10.
Before doing anything else, ask the custodian: Was my parent already taking Required Minimum Distributions?
The custodian, the bank or brokerage that held the account, can tell you this directly. This one question shapes nearly every decision that follows, so it's worth confirming before you assume anything.
Step 2: Understand the 10-year clock
Under the SECURE Act rules that apply to most adult children who inherit an IRA, the entire account generally must be emptied by December 31 of the tenth year following the year of death.
For example: if a parent passes away in 2026, the account generally must be emptied by December 31, 2036.
A lot of people misread this rule. They hear "10 years" and think, "Great, I'll just wait until year 10 and take it all out then." That instinct is understandable, but it can sometimes create an enormous tax problem. Withdrawing a large IRA balance all in one year means all of that income lands on a single tax return, which can push you into a much higher tax bracket than if the withdrawals had been spread out.
If your parent had not started RMDs yet: your potential flexibility advantage
If your parent passed away before reaching their Required Beginning Date, many beneficiaries have no required annual withdrawal during years one through nine. The account still generally must be emptied by year 10, but how you get there is largely up to you.
That flexibility is a planning opportunity, not a requirement to do nothing. Here are three strategy ideas worth discussing with a tax professional.
Strategy idea #1: delay withdrawals during peak income years
If you're currently in your highest-earning years, adding IRA withdrawals on top of your regular income could push a meaningful portion of that money into a higher tax bracket.
Example: A physician earning $350,000 a year and expecting to retire in six years might consider waiting until income falls in retirement before taking larger distributions from the inherited account. This is not guaranteed to reduce taxes in every case, but for someone whose income is expected to drop substantially, it's often worth modeling.
Strategy idea #2: take withdrawals during career gaps
Lower-income years are often the best years to take inherited IRA distributions, because the withdrawal is taxed at your lower marginal rate for that year.
Examples of years that might qualify:
- A sabbatical
- A layoff or job transition
- Early retirement
- A business startup period, when income is still ramping up
- Parental leave
- Any other year where your income is unusually low
Strategy idea #3: spread withdrawals across ten years
Rather than waiting or timing specific years, some beneficiaries simply divide the balance evenly across the 10-year window.
Example: A $500,000 inherited IRA divided across 10 years works out to roughly $50,000 a year. That approach avoids concentrating the income into any single year and can help keep the withdrawals from pushing your income dramatically higher in any one tax year.
None of these strategies is guaranteed to produce a specific tax outcome. The right approach depends on your income, your filing status, your other assets, and how your income is likely to change over the decade, which is why this is worth reviewing with a tax professional rather than deciding based on a general rule of thumb.
If your parent had started RMDs
If your parent had already started taking RMDs before they passed away, the rules are generally less flexible. You may be subject to annual inherited IRA distribution requirements in addition to the requirement to fully distribute the account by the end of the tenth year, depending on your beneficiary status and the facts surrounding the inheritance. The IRS finalized rules clarifying this framework, and the details can vary based on your specific situation.
This scenario requires more active tracking. A helpful checklist:
- Confirm whether you have an annual withdrawal requirement
- Track your yearly distributions so you don't fall short
- Monitor the account's balance at the end of each year
- Understand the potential penalties for failing to satisfy a required distribution
- Keep the year-10 deadline to fully distribute the account on your calendar
Accounts in this category tend to need more ongoing attention than a typical brokerage account. Missing an annual distribution, even unintentionally, can carry a tax cost, so it's worth setting a yearly reminder to review the account with whoever is helping you manage your taxes.
Five tax questions to ask before taking money out
Before you take a single withdrawal, it's worth sitting down and answering these five questions.
Question 1: what tax bracket am I in today?
Marginal tax brackets mean only the income within a given bracket is taxed at that bracket's rate, not your entire income. Understanding where your current income sits relative to the next bracket threshold helps you see how much room, if any, you have to take a withdrawal without pushing meaningfully more income into a higher rate.
Question 2: will my income likely increase or decrease over the next decade?
Think through what the next 10 years might realistically look like:
- Are you approaching retirement?
- Do you expect a pension to begin?
- Do you typically have large bonus years?
- Is a business sale or stock option exercise on the horizon?
- Could you inherit other assets during this window?
Each of these can shift your income up or down in ways that change which years make sense for a distribution.
Question 3: will I have unusually low-income years available?
If you can identify a year or two where your income will likely be lower than normal, whether from a career change, a leave of absence, or early retirement before other income sources begin, those years can be some of the most valuable times to take an inherited IRA distribution.
Question 4: will Social Security begin during the 10-year period?
If you expect to start Social Security at some point during your 10-year window, stacking an inherited IRA withdrawal on top of that income may create more total taxable income than either source would generate on its own. Mapping out roughly when Social Security will begin can help you decide which years to prioritize for withdrawals and which to avoid.
Question 5: could large withdrawals affect Medicare premiums in retirement?
This is a detail many people overlook. Inherited IRA withdrawals count as income for IRMAA (Income-Related Monthly Adjustment Amount) purposes, the surcharge Medicare applies to Part B and Part D premiums once your income crosses certain thresholds. A large withdrawal in one year can raise your Medicare premiums roughly two years later, even after your income returns to normal. We cover this in more detail in How Inherited IRA Withdrawals Can Trigger IRMAA Medicare Surcharges.
Advanced planning ideas most people never consider
Idea #1: pair inherited IRA withdrawals with increased 401(k) contributions
A beneficiary takes $20,000 from an inherited IRA. At the same time, they increase their workplace 401(k) deferrals. The additional 401(k) contribution may partially offset the taxable income increase from the withdrawal. This can be particularly useful for high earners who still have significant contribution room available. This is a strategy to discuss with a tax advisor before implementing, since the numbers only work in specific situations.
Idea #2: use inherited IRA distributions to fund Roth IRA contributions
If you're eligible based on your income and the applicable tax rules, using cash from an inherited IRA distribution to fund a Roth IRA contribution (assuming you have earned income to support the contribution) can shift some of that money into an account that grows tax-free going forward.
Idea #3: use inherited IRA withdrawals during early retirement
There's often a window between when someone retires and when they start Social Security or a pension. Income can be unusually low during this stretch, which can make it a good window for taking larger inherited IRA distributions at a lower marginal rate.
Idea #4: fill up lower tax brackets intentionally
Rather than waiting for year 10 and taking everything at once, some beneficiaries intentionally withdraw just enough each year to stay within a target tax bracket. Over several years, this can spread the tax cost more evenly than a single large distribution near the deadline.
Idea #5: coordinate withdrawals with charitable giving goals
If charitable giving is already part of your financial picture, coordinating the timing of inherited IRA withdrawals with charitable deductions may help offset some of the additional taxable income in a given year. This is a coordination question that depends on your full tax situation, and it's an area where estate and legacy planning considerations often intersect with tax planning.
Common mistakes to avoid
Mistake #1: cashing out the entire IRA immediately. This is one of the most common and costly mistakes. It can potentially create a massive tax bill in a single year, especially for a larger account.
Mistake #2: ignoring the 10-year deadline. Some beneficiaries simply forget about the account until the deadline is close, which removes most of the flexibility discussed above.
Mistake #3: forgetting about annual distribution requirements, where applicable. If your parent had already started RMDs, skipping a required annual distribution can carry a tax penalty.
Mistake #4: failing to name successor beneficiaries. An inherited IRA still needs its own beneficiary designation. Without one, the account may be subject to less favorable default rules if something happens to you before the account is fully distributed.
Mistake #5: making decisions before understanding your tax situation. Withdrawing money from an inherited IRA without first mapping out your income over the next several years is a bit like deciding how much to spend before you've looked at your budget.
A simple inherited IRA action plan
- Obtain a copy of the death certificate
- Open the inherited IRA account correctly, with the account properly titled
- Confirm your beneficiary status (spouse, adult child, or other)
- Determine whether your parent had reached RMD age and whether any year-of-death RMD remains outstanding
- Understand your 10-year deadline
- Estimate your income over the next decade
- Build a withdrawal strategy around your income and tax bracket
- Coordinate the plan with a CPA
- Review the plan annually, since income and tax law can both change
- Avoid waiting until year 10 without a plan already in place
This process tends to matter most for people navigating a recent loss alongside a new financial decision, which is part of why we work with clients going through this kind of transition to help them sort through the options at a pace that makes sense for them.
Final thoughts
Inheriting an IRA isn't just about managing an investment account. It's a tax-planning opportunity.
The beneficiaries who come out ahead are rarely the people who withdraw the money first. They're usually the people who create a thoughtful withdrawal strategy before taking the first dollar.
A few hours of planning today could potentially save thousands of dollars in taxes over the next decade, though the actual outcome depends entirely on your individual income, tax bracket, and timeline. Coordinating this kind of decision with retirement and tax planning rather than treating it as a standalone withdrawal is usually where the real difference is made.
Retirement Tax Review
If you've inherited an IRA from a parent, a Retirement Tax Review can help you build a withdrawal strategy before you take your first distribution. We would be glad to help you think through the options before you take any money out.
Our team works to coordinate the tax, income, and investment planning pieces involved in an inherited IRA. Results will vary by individual and depend on your complete financial picture, and we make no guarantees of any specific outcome or tax savings.
Schedule a Retirement Tax Review with our team to discuss your situation.
This content is for educational purposes only and does not constitute individual investment, tax, or legal advice. Consult a qualified professional before making decisions about an inherited retirement account.
Frequently asked questions
Do I have to take money out of my inherited IRA every year?
It depends on whether your parent had already started required minimum distributions before they passed away. If they had, IRS rules generally require you to take annual distributions in addition to fully emptying the account by the end of the tenth year. If they had not yet started RMDs, many beneficiaries have no required annual withdrawal in years one through nine, though the account still generally must be emptied by year ten.
What happens if I miss the 10-year deadline?
Failing to fully distribute an inherited IRA by the end of the tenth year can trigger an IRS excise tax on the amount that should have been withdrawn. Rules around penalty relief are fact-specific, so working with a tax professional well before the deadline, and promptly if one is missed, is important.
Can I roll my inherited IRA into my own IRA?
Generally only a surviving spouse has the option to treat an inherited IRA as their own or roll it into an existing IRA. Non-spouse beneficiaries, such as adult children, are generally required to keep the funds in a properly titled inherited IRA and cannot roll it into their personal retirement account.
Will inheriting an IRA affect my Medicare premiums?
It can. Inherited IRA withdrawals count as taxable income, so a large distribution can raise your modified adjusted gross income enough to trigger IRMAA surcharges on Medicare Part B and Part D roughly two years later. Spreading withdrawals across more years may help you stay under a threshold, though the outcome depends on your full income picture.
Should I take a lump sum from my inherited IRA?
Usually a lump sum is not the first option to consider, unless you have a specific need for the funds. Withdrawing the entire balance at once concentrates a decade's worth of taxable income into a single year, which can push you into a higher tax bracket and raise Medicare premiums. Spreading withdrawals over time is often worth exploring with a tax professional first.