Maria, a 56-year-old hospital operations director earning $260,000 a year, just inherited her father’s IRA. The balance: $1.8 million. Her father was 78 and had already begun his required minimum distributions before he passed. She is the sole beneficiary, not his spouse, with roughly seven years before planned retirement. What she needs to watch for are painful tax mistakes.
Our Case Study
- Beneficiary: 56-year-old single filer, hospital director, W-2 income of $260,000
- Inherited asset: $1.8 million traditional IRA from her father
- Key fact: Father died after his required beginning date, triggering the both/and rule
- Planned retirement: Age 63, dropping her ordinary income materially
- What is at stake: Roughly $480,000 in lifetime federal tax, driven entirely by which year she pulls which dollar
Per IRS Publication 590-B and the SECURE Act final regulations, a non-spouse beneficiary who inherits from an owner who had already started RMDs faces two simultaneous obligations. First, the entire account must be drained by the end of year 10. Second, the annual RMDs must continue in years 1 through 9 based on the beneficiary’s life expectancy.
That both/and structure trips people up. The annual RMD in early years is relatively small, often in the $60,000 to $75,000 range on a $1.8 million balance for a beneficiary in her late 50s. The rest is flexible. How Maria uses that flexibility determines the entire outcome.
For 2026, a single filer hits the 32% bracket at $201,775 of taxable income and the 35% bracket at $256,225. Maria’s W-2 already lands her near the top of the 32% band before any inherited IRA dollar appears.
The even-spread plan: Withdraw roughly $180,000 per year for 10 straight years. Every dollar stacks on top of her $260,000 salary, landing in the 35% bracket with a slice flirting with 37% in peak years. She pays top-bracket federal tax on essentially the entire $1.8 million.
The back-loaded plan: Take only the legally required RMDs in years 1 through 7 while working. Retire at 63. With W-2 income gone, her ordinary income collapses into the 22% and 24% bands, which run up to $105,700 and $201,775 respectively for single filers in 2026. Then pull the remaining roughly $1 million across years 8, 9, and 10, deliberately filling the 24% bracket without spilling into 32%.
It’s the same account with the same 10-year deadline. The same total dollars are distributed. But the tax bill differs by roughly $480,000 because the second plan moves the bulk of the distribution from a 35% world to a 24% world.
Strategic Paths Worth Considering
- Minimum-now, max-later (recommended for most people in this position). Take only the required annual RMD while W-2 income is at peak, then drain aggressively in retirement years. This is the dominant strategy when the beneficiary has a known income cliff inside the 10-year window. The only real risk is tax law changing before year 10, a manageable concern given that the 2026 brackets are now permanent under the One Big Beautiful Bill.
- Partial Roth conversion of personal IRA assets during the drawdown years. This does not apply to the inherited IRA itself (inherited traditional IRAs cannot be converted), but the low-income retirement years that Maria engineers can be used to convert her own pre-tax retirement accounts at 24% rather than 32%.
- The even-spread approach. This makes sense only if Maria expects to keep working past 66 or anticipates a much higher-income retirement.
What to Do This Quarter
Pull the IRS life expectancy table and calculate the year-1 RMD on the $1.8 million balance. That number is the floor for distributions.
Map taxable income year by year through age 66, including the retirement transition. Identify the bracket headroom available in years 8, 9, and 10, then reverse-engineer the back-loaded distributions to fill that headroom without overshooting.
Avoid the most common mistake — thinking in year-1 dollars instead of 10-year totals. The beneficiary who asks “what should I do with the money this year?” ends up on the even-spread path by default. The beneficiary who asks “what bracket will I be in during year 9?” ends up with the extra $480,000. For an inheritance of this size, a fee-only CPA who models the full 10-year tax projection costs a few thousand dollars and pays for itself many times over.
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