How Much Tax Does a 55-Year-Old Owe Inheriting a $1.2 Million IRA From a Parent?

He was 55, single and earning about $150,000 a year as a regional sales director when his father died in 2025. A few weeks later the custodian’s letter arrived. He was the only beneficiary of a $1.2 million traditional IRA.

His first plan was to cash it out and pay off the house. Then his accountant ran the numbers. Taking everything in 2026 adds $424,766 to his federal tax bill. That is 35.4% of the inheritance, and state tax comes on top of it.

When he takes out the money decides how much of it he keeps.

The 10-Year Clock Starts at Death

IRS Publication 590-B requires a designated beneficiary who is not an eligible designated beneficiary to empty the account by December 31 of the year containing the 10th anniversary of the owner’s death. For a 2025 death, the deadline is December 31, 2035.

Eligible designated beneficiaries are limited to a surviving spouse, a minor child, a disabled or chronically ill person, or anyone not more than 10 years younger than the IRA owner. A middle-aged son fails every one of those tests.

Whether he has to take money out every year depends on one fact: had his father reached his required beginning date? His father had not. If death occurs before that date, no distribution is required for any year before the 10th year. If death occurs on or after it, the beneficiary takes annual life-expectancy RMDs in years one through nine and still empties the account by year 10. Missing a required amount triggers a 25% excise tax under 26 U.S.C. § 4974(a).

The 10% early-withdrawal penalty does not apply here, because 26 U.S.C. § 72(t)(2)(A)(ii) exempts distributions made to a beneficiary on or after the death of the owner. Every dollar he takes out still counts as ordinary income under 26 U.S.C. § 408(d)(1).

3 Withdrawal Paths, 3 Tax Bills

Assumptions: he files single, takes the tax year 2026 standard deduction of $16,100, and the tax year 2026 brackets apply in every year. The model also assumes no investment growth and counts federal tax only. On his pay alone, taxable income is $133,900 and his tax year 2026 federal tax is $24,734. Each figure below is the tax the IRA adds on top of that.

The lump sum pushes most of the money past the 2026 single threshold of $640,600, where the top rate of 37% starts.

The even path adds $32,970 a year. His pay already fills the lower brackets, so each withdrawal lands in the 2026 brackets of 24% and 32%.

The retirement-timed path assumes he stops working after five years and has no other taxable income during the final five. With no paycheck in those years, the IRA money fills the 10%, 12% and 22% brackets first. That path costs $184,246 less than the lump sum.

Each Path Carries a Tradeoff

The lump sum gives him certainty and cash right away. Money reinvested in a taxable brokerage account then owes tax only on future growth.

The even path keeps each year predictable. It also matches the structure the rules require when a parent has already started RMDs, since annual minimums apply anyway.

The retirement-timed path has the lowest bill on paper, but it depends on leaving work on schedule. Five years of untouched growth also makes the later withdrawals larger, which can push income into higher brackets. A pension or Social Security check adds to taxable income in those same years, and the deferral itself is off the table if his father had passed his required beginning date.

State income tax applies on top of every path in most states. Living in a state with no income tax during the biggest withdrawal years reduces the total bill.

Moves to Make Before the First Withdrawal

• Ask the custodian for the parent’s date of birth and RMD history to confirm whether the required beginning date had passed. If it had, beneficiaries must take the owner’s required minimum distribution in the year of death.
• Move the money only by trustee-to-trustee transfer into an account titled as an inherited IRA. Under 26 U.S.C. § 408(d)(3)(C), an inherited IRA cannot be rolled over, so a check made out to him is final and fully taxable.
• Build a year-by-year income projection through 2035, with the planned retirement year noted.
• Set withholding or quarterly estimated payments before any large withdrawal year.

A CPA can run these numbers against his own state and income. The number to remember is $184,246. On this $1.2 million IRA, that is the federal tax difference between the most expensive withdrawal schedule and the cheapest one.

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