A 61-year-old, still working, recently inherited a traditional IRA from his father worth roughly $850,000. He assumed he had a decade to figure out the tax planning. But if he defaults to the “let it grow, deal with it later” instinct, he is on track to write a large check to the IRS.
Under the SECURE Act, a non-spouse beneficiary who inherits a traditional IRA must empty the account by the end of the tenth year after the original owner’s death. What trips up many people is the second half of the rule. Because his father had already started taking required minimum distributions before he died, the IRS finalized guidance in 2025 confirming that annual RMDs are also required in years one through nine. The account cannot simply sit untouched until year 10.
This matters because our reader is in peak earnings territory. Assuming he and his spouse file jointly, his wages likely put him near the top of the 22% bracket or into the 24% bracket, which in 2026 runs up to $211,400 of taxable income. The next jump is 32% on income above that threshold, then 35% starting at $403,550. Every dollar pulled from the inherited IRA lands on top of his wage income at his highest marginal rate.
The $210,000 Mistake Hiding in Plain Sight
Picture the default path. He ignores the account for nine years and takes only the minimum RMDs to stay compliant. He lets the balance compound, and then in year 10 he is forced to distribute what could easily be a balance north of $1 million after growth. That entire remaining balance stacks on top of whatever income he has that year. Large chunks get taxed at 32% and 35% instead of 22% or 24%.
Spreading distributions evenly and keeping most of them inside the 22% to 24% brackets produces a lifetime federal tax bill in the low $200,000s on the $850,000. Deferring and dumping in year 10, with growth, pushes the bill past $400,000 in many scenarios. The gap, roughly $210,000 or more, is a self-inflicted wound
Here’s a sequencing plan to consider:
- Project each year’s taxable income for the next 10 years. Map his wages, his spouse’s wages, expected retirement date, Social Security claiming age, and the year RMDs on his own retirement accounts begin at 73. This gives you the ceiling for each year: how much room he has inside the 22% and 24% brackets before dollars spill into 32%.
- Distribute enough each year to fill the 24% bracket, no more. If he has $60,000 of headroom before hitting 32%, take roughly that much from the inherited IRA. Reinvest the net proceeds in a taxable brokerage account. He still gets the money. He just controls the tax rate.
- Accelerate in any low-income or gap year. If he retires at 63 or 64 and has a window before Social Security and his own RMDs kick in, those years are gold. Wages drop, brackets open up, and he can push larger inherited-IRA distributions through at 22% or even 12%.
What About Converting to a Roth?
He cannot. Inherited traditional IRAs held by non-spouse beneficiaries are not eligible for Roth conversion. The only lever he has is timing and bracket management inside the 10-year window.
One tailwind to keep in mind. The Fed has been in a cutting cycle, taking the funds rate from about 4.5% down to about 4% since late 2025, and the 10-year Treasury sits near 4.6%. That means the fixed-income portion of the inherited account is generating meaningful income while he distributes it.
What to Do This Month
First, take the year-one RMD on time. Missing it triggers a penalty on top of the tax, and the IRS is now enforcing the annual requirement. Second, build the 10-year distribution schedule before the end of this calendar year, not next April.
If you inherited an IRA, a one-time, fee-only consultation focused on inherited-IRA sequencing could pay for itself many times over. The rules are unforgiving, and the window to fix the plan is closing with each tax year.
Contact [email protected] for any questions or corrections.
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