The Moment
You inherited a Traditional IRA. Unlike a Roth, every dollar you withdraw from a Traditional IRA is taxed as ordinary income — at your marginal tax rate.
This means the distribution strategy matters enormously. Taking $200,000 in a single year could push you into the 32-35% bracket and cost $50,000+ in federal taxes. Spreading the same $200,000 across 10 years at $20,000/year keeps you in a lower bracket and may cost $30,000-$35,000 total. The difference is $15,000-$20,000 in tax savings from timing alone.
The Rules
10-year rule: Non-spouse beneficiaries must empty the account within 10 years of the original owner's death. Recent IRS guidance requires annual RMDs in years 1-9 if the original owner had already begun taking required distributions (was over 73).
Spouse beneficiaries: You can roll the inherited IRA into your own Traditional IRA, delay distributions until the deceased would have turned 73, or remain as beneficiary with different rules.
Same exceptions apply: Minor children, disabled beneficiaries, and those within 10 years of the deceased's age may use stretch distributions.
Tax-Smart Distribution Strategy
The goal: Keep distributions in your lowest available tax bracket each year.
Review your expected income for each of the next 10 years. In lower-income years (career transition, sabbatical, early retirement), take larger distributions. In higher-income years, take smaller distributions or the minimum required.
Example: You inherited $200,000 and earn $80,000/year. Taking $20,000/year keeps you in the 22% bracket. But if you have a year where you earn $50,000 (job change, maternity leave), taking $40,000 that year still keeps you in the 22% bracket while reducing future required distributions.
Roth conversion strategy: In low-income years, consider converting inherited Traditional IRA distributions directly into your own Roth IRA. You pay tax now at a low rate and the money grows tax-free forever.
Run Your Numbers
Enter the inherited IRA value and your income to see distribution options.
Inherited IRA Decision Tool
What to explore next
- →How do I calculate the optimal annual distribution amount?
- →Should I convert inherited IRA distributions to a Roth?
- →What are the RMD requirements for inherited IRAs?
Frequently Asked Questions
Can I avoid paying taxes on an inherited Traditional IRA?
No — the taxes are unavoidable. The original owner deducted contributions and deferred taxes, and those taxes come due when the money is distributed. Your only control is the timing and amount of distributions, which affects your marginal rate.
Should I take all the money out now to invest it myself?
Almost never. A lump-sum distribution adds the full amount to your taxable income for the year, likely pushing you into a much higher bracket. The tax cost of a lump sum versus 10-year spreading can be $10,000-$50,000+ depending on the amount.