A woman turns 62, her father passes, and his $1.2 million traditional IRA lands in her name. She is a non-spouse beneficiary, so the 10-year rule applies. Because her father had already started his own required minimum distributions before death, she inherits an extra wrinkle. She must take annual RMDs in years one through nine and drain the account by year 10, not just clear it by the deadline. That combination is what turns a windfall into a tax problem.
She is still working and earning a solid salary. Her instinct is to leave the money invested, take only the minimum, and mop up the balance in year 10.
Why the Year-10 Cliff Costs So Much
Federal brackets are stacked, and stacking a seven-figure distribution on top of a working salary is what’s costly. For a single filer in 2026, the 24% bracket starts at $105,700, the 32% bracket at $201,775, the 35% bracket at $256,225, and the 37% top bracket at $640,600. A late-window distribution above a million dollars pushes most of the money through 35% and 37% at the same time her wages are still filling the lower brackets underneath.
That is how the bill arrives at roughly $320,000 in federal tax. And that’s before any state tax kicks in. It also triggers IRMAA for two years, because Medicare uses a two-year lookback on modified adjusted gross income. A single filer with MAGI above $109,000 crosses into the first IRMAA tier, and above $137,000 into the second, with the surcharges climbing from there. A million-dollar income year detonates several of those tiers at once.
Bracket Management Is the Real Variable
The timing is what she controls. And her calendar hands her an opening most beneficiaries do not get: she plans to retire at 65. That means years four through 10 of the 10-year window are low-income years by design. Wages disappear. Social Security has not started yet if she waits. So the lower brackets are wide open.
The move is to draw on the inherited IRA hard during those low-income years, deliberately filling the 22% and 24% brackets each year instead of letting the balance compound into a single top-bracket event. Years one through three (still working) she takes only the required annual RMD. Years four through 10 she treats the account like a paycheck, pulling enough each year to top out the 24% bracket but no more.
Delay Social Security, Skip the Roth Conversion
Two related decisions our retiree should consider:
- Delay Social Security to 70. The inherited IRA becomes her bridge income from 65 to 70. She earns delayed retirement credits on her own benefit while simultaneously keeping the runway low enough to draw the inherited account at 22% and 24% rather than 32% and up.
- Do not convert her own IRA to Roth yet. A Roth conversion competes with the inherited IRA for the same bracket space, and the inherited account has a hard deadline while her own does not. Drain the inherited money first. Convert her own IRA after year 10, once the forced distributions are done and she still has years before her own RMDs begin.
One more piece of context. With the 10-year Treasury yielding about 4.7%, parking the annual distributions in short-duration Treasuries or a money market until she needs them is a reasonable holding pattern.
What to Do First
Build a 10-year drawdown map before the end of the calendar year the account is inherited. Model each year’s projected wages, distributions, Social Security timing, and target top-of-bracket. This is a planning problem where a single meeting with a fee-only CPA or CFP produces a written schedule worth six figures. The $320,000 gap between the default plan and the sequenced plan is the fee justification. Bring last year’s tax return, the inherited IRA statement, and an estimated retirement date. Leave with a year-by-year distribution target.
(We also wrote a free guide on defusing exactly this kind of pre-tax balance before it detonates: The First-Year Tax Bomb).
Contact [email protected] for any questions or corrections.
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