A 45-Year-Old Inherits Dad’s $1 Million IRA and Discovers the IRS Already Owns a Chunk of It

A 45-year-old opens the estate paperwork, sees $1 million in Dad’s traditional IRA, and exhales.

But the account is pretax. Every dollar Dad deferred over 40 years still owes federal income tax at ordinary rates, and now the clock to pay it runs on the beneficiary’s calendar. This piece builds on reporting from Kiplinger’s coverage of inherited-portfolio traps, which flagged the 10-year drawdown rule and the 25% excise tax on missed required minimum distributions as the two mistakes that quietly cost non-spouse heirs the most.

Why the IRS Already Owns a Slice

Traditional IRAs run on deferral. Dad got a deduction on every contribution and never paid tax on 40 years of growth. When a non-spouse inherits, the account transfers intact and the deferred tax bill transfers with it. The IRS’s share is baked into the balance.

For a non-spouse beneficiary who is not chronically ill, disabled, a minor child of the decedent, or within 10 years of the decedent’s age, the SECURE Act imposes the 10-year rule. As Suze Orman put it on her podcast, non-eligible designated beneficiaries have “10 years to wipe it clean.”

How the 10-Year Rule Actually Works

The account must be fully distributed by December 31 of the tenth year after the year of death. If Dad died in 2026, the account has to hit zero by December 31, 2036.

There is a second layer. If Dad had already started his own RMDs before he died, the heir also has to take annual RMDs in years one through nine, then empty the account in year 10. That was the rule the IRS finalized in 2024 after years of confusion. Missing an RMD triggers a 25% excise tax on the amount that should have come out, dropping to 10% if the beneficiary corrects it promptly and files Form 5329.

Math on a $1 Million Balance

Assume the 45-year-old is a single filer earning $120,000 in wages and chooses to smooth the distributions: roughly $100,000 out of the IRA each year for 10 years, holding future growth flat to keep the math legible.

Stacking $100,000 on top of $120,000 pushes taxable income to about $220,000. Under the 2025 single-filer brackets, the 24% rate runs from $103,351 to $197,300, and the 32% bracket starts at $197,301. Most of the inherited dollars land in the 24% bracket. The last slice tips into 32%.

Federal tax on the inherited $100,000 alone runs roughly $25,000 a year. Over a decade, that’s about $250,000 to the IRS before a state return is filed. Add California or New York and another $70,000 to $90,000 walks out the door. The IRS’s chunk of a $1 million inherited IRA is real, and for a mid-career earner it typically clears a quarter of the account.

Why Taking It All in Year 10 Is the Worst Play

The instinct is to let it grow and pull it in one shot. A $1 million-plus distribution lands almost entirely in the 32% and 35% brackets. The 35% bracket for a single filer begins at $250,526 in 2025. That single move can cost $80,000 to $100,000 more in federal tax than a level 10-year drawdown, before counting state tax and Net Investment Income Tax exposure on other holdings.

Three Moves That Change the Outcome

1. Smooth the withdrawals. Model taxable income against the top of the 24% bracket. Take enough each year to fill that bracket without spilling into 32%.
2. Time big deductions to distribution years. Bunching charitable gifts through a donor-advised fund, or paying deductible medical costs, offsets the inherited-IRA income.
3. Front-load in low-income years. A sabbatical, a layoff, a business loss, or an early-retirement year is the window to accelerate distributions at 12% or 22%.

None of this is available to a beneficiary who inherits through a trust without an eligible designated beneficiary designation. In that case, the payout window can compress to five years, as one caller learned when her father’s IRA was left to the trust and the family had to pay taxes on the money distributed by the end of five years.

This is the kind of math worth running with a CPA or fiduciary advisor before the first distribution, because year one sets the pattern for the next nine.

Data Sources

• The Hidden Costs of Inheriting an Investment Portfolio (Kiplinger): anchored the 10-year rule and the 25%/10% missed-RMD excise tax that frame this article.
• IRS 2025 federal income tax brackets: used to compute the marginal-rate impact on a $100,000 annual distribution.
• Suze Orman’s Women & Money podcast: sourced plain-English framing of the 10-year rule and the trust-beneficiary five-year trap.

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