Key Takeaways
- Under the IRS’s 10-year rule, most heirs who aren’t a spouse have to empty an inherited IRA by the end of the 10th year after the owner dies.
- A single 55-year-old earning $150,000 inherits a $1 million IRA from a parent who hadn’t started required withdrawals. If they take it all in year 10, they’d owe $350,766 in extra federal income tax under 2026’s brackets.
- Taking $100,000 a year for 10 years would cost $265,700 in total, or $85,066 less, because none of the money would be taxed at 35% or 37%.
- An heir whose income will drop when they retire may do better by saving bigger withdrawals for those years.
If a parent leaves you a traditional IRA, you’ll most likely have 10 years to empty it. And depending on when in those 10 years you take the money out, you could pay tens of thousands of dollars more in federal income tax.
Ed Slott, of Ed Slott and Company, took this on during this week’s episode of The Great Retirement Debate, the podcast he co-hosts. He was explaining how the SECURE Act did away with the old “stretch IRA,” which let heirs spread withdrawals over their own lifetimes, and put in a 10-year deadline for most children and grandchildren. “Can you even imagine the tax bill on that?” Slott asked. “Even if the kids are not kids, the beneficiaries could be in their 50s or 60s.”
Plenty of those heirs are still drawing a paycheck, and every IRA dollar they take out is taxed on top of it.
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Say you inherit $1 million at 55
Let’s say, hypothetically, you’re single, 55 and earning $150,000 a year when your parent dies and leaves you a $1 million traditional IRA. You’re the named beneficiary, and your parent hadn’t started taking required minimum distributions. Your salary stays at $150,000 for the next 10 years, and the account stays at $1 million. You can take the money out in whatever amounts you like, as long as the account is empty by the deadline. Most people would think of two plans: take $100,000 a year for 10 years, or leave the account alone and take the whole $1 million in year 10.
Ten years, and one deadline
The IRS’s Publication 590-B says most heirs who aren’t a spouse must empty an inherited IRA by the end of the 10th year after the owner’s death. The rule applies to heirs of IRA owners who died after 2019, since the SECURE Act took effect in 2020. So if your parent died in 2026, the account has to be empty by the end of 2036.
Heirs face a stricter rule if the parent had already started required withdrawals. Andy Panko, of Tenon Financial, walked through that case this week on his Retirement Planning Education podcast, using an 80-year-old who leaves an IRA to a 55-year-old child. That child “does need to take annual distributions, required minimum distributions, from this inherited account every year and also empty it within the 10th year after the year of the person’s passing,” Panko said. For that heir, leaving everything for year 10 isn’t allowed.
Nearly half the money lands at 37%
Start with your own taxable income. After the IRS’s 2026 standard deduction of $16,100 for a single filer, your $150,000 salary is $133,900 of taxable income. That’s already in the 24% bracket, which starts at $105,700, and every IRA dollar lands on top of it.
Take the whole $1 million in year 10, and your taxable income jumps to $1,133,900. Here’s how 2026’s brackets tax the inheritance, slice by slice:
- $67,875 at 24%, up to $201,775: $16,290
- $54,450 at 32%, up to $256,225: $17,424
- $384,375 at 35%, up to $640,600: $134,531
- The last $493,300 at 37%: $182,521
That’s $350,766 of extra federal income tax in a single year, or about 35 cents of every dollar you inherited. Ouch.
$100,000 a year stays below the 35% bracket
Now take $100,000 a year instead. Your taxable income rises to $233,900 each year. The first $67,875 of the withdrawal is taxed at 24%, or $16,290, and the other $32,125 at 32%, or $10,280. That’s $26,570 a year and $265,700 over the 10 years, or $85,066 less than waiting. None of the inheritance is taxed at 35% or 37%.
That’s a lot of money to hand the IRS for procrastinating.
Plan the withdrawals around your paycheck
You don’t have to take exactly $100,000 a year. With a $150,000 salary, any yearly withdrawal between $67,875 and $122,325 adds up to the same $265,700 over 10 years. A $67,875 withdrawal fills the rest of your 24% bracket, and $122,325 takes your taxable income to $256,225, where the 35% bracket starts. Stay in that range every year, and you use all of your 24% room while keeping every dollar out of the 35% bracket. In real life your income moves around, so you can match the withdrawals to it: smaller ones in a big-bonus year, bigger ones in a year with a sabbatical or a layoff.
An heir about to retire might wait
If the account grows, both tax bills go up, and every extra dollar in a year-10 withdrawal is taxed at 37%. Brackets can change too: the IRS adjusts them for inflation each year, and Congress can rewrite them. The bigger exception is an heir whose income is about to drop. Retire at 60, say, and you’d have about five years with no salary before the deadline. Bigger withdrawals in those years could be taxed at lower rates than the 32% the even split pays.
Frankly, unless you know a pay cut is coming, my general view is to start early and spread the withdrawals out. In year 10 you’re stuck with whatever brackets exist then, and the whole balance goes on one tax return.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
