Most estate planning conversations focus on the person leaving the assets. However, I often meet clients on the other side of that equation: they are in their 20s or 30s, or even 50s or early 60s, and suddenly become the beneficiary of their parent’s IRA or 401(k).
That inheritance can meaningfully boost your own retirement. It can also come with a tax bill larger than it needs to be if you don’t plan your withdrawals. Under the SECURE Act, when you take money out of an inherited retirement account matters almost as much as how much you inherit.
What the SECURE Act changed for heirs
Before 2020, an adult child who inherited an IRA could often “stretch” withdrawals over their own life expectancy, aptly nicknamed “Stretch IRAs.”For most account owners who died in 2020 or later, that option is gone. Most non-spouse beneficiaries must now “empty the entire account by the end of the 10th year” following the year of the owner’s death (Internal Revenue Service [IRS], 2026).
A smaller group, called eligible designated beneficiaries, can still take distributions based on life expectancy. According to the IRS (2026), that group includes:
- A surviving spouse
- A minor child of the account owner
- A disabled or chronically ill individual
- An individual who is not more than 10 years younger than the account owner
If you’re in your 50s or 60s and inheriting from a parent, you almost certainly fall outside that list. That means the 10-year clock applies to you. The biggest takeaway for you is knowing at which stage of Required Minimum Distributions (RMD), your parent(s) passed- before OR after RMD age? Before means you have the flexibility to take or not take a distribution in years 1-9. After means you also need to take a minimum annual distribution based on your age. This is an important caveat because, if you don’t understand it correctly, you could be subject to penalties.
Why timing matters so much for pre-retirees
Withdrawals from an inherited traditional IRA are taxed as ordinary income and added to whatever else you earn that year. For pre-retirees, that’s often the problem: many are in their peak earning years when a parent passes.
Consider a hypothetical married couple filing jointly with $250,000 of taxable income who inherit an $800,000 traditional IRA. Using 2026 federal brackets, the 24% bracket for joint filers runs up to $403,550 of taxable income, and the top 37% rate begins above $768,700 (Stimpson, 2025).
|
Approach |
Taxable income in withdrawal year(s) | Highest federal bracket reached | Approx. federal tax on the inheritance |
|---|---|---|---|
|
Withdraw all $800,000 in one year |
$1,050,000 |
37% |
About $265,000 |
| Withdraw about $80,000 per year for 10 years | About $330,000 each year | 24% |
About $192,000 |
In this simplified example, spreading the withdrawals keeps every dollar in the 24% bracket and reduces federal tax by roughly $73,000. The example is for illustration only: it ignores investment growth, future bracket changes, state taxes, deductions, and other income, and it is not a projection of any individual’s results.
The flip side also matters. Waiting until year 10 to take everything can create the same bunching problem in a single tax year, especially if that year lands while you’re still working. OR if you’ve been thinking about a sabbatical, year 10 could be a great year to take a year off work!
Planning moves to consider
Every family’s situation is different, but these are the questions I typically walk through with clients who are inheriting:
- Confirm the rules that apply to you. Did your parent die in 2020 or later? Had they started RMDs? Are you an eligible designated beneficiary? The answers determine whether you face annual minimums, the 10-year deadline, or both (IRS, 2026).
- Map your income across the 10-year window. If you plan to retire within the next decade, the years between your last paycheck and the start of Social Security or your own RMDs may be lower-income years. Shifting more of the inherited withdrawals into that window can help keep them in a lower bracket.
- Fill brackets on purpose. Rather than withdrawing a round number each year, consider taking enough to “fill” your current bracket without spilling into the next one.
- Treat an inherited Roth IRA differently. Inherited Roth IRAs generally follow the same distribution rules as traditional IRAs, but withdrawals of contributions are tax-free, and most earnings withdrawals are too (IRS, 2026). That shifts the planning question from minimizing taxes to how long to let the account grow.
- Coordinate with the rest of your plan. Inherited dollars can fund your own retirement savings, pay down debt, or support charitable goals. Your tax professional and financial planner should be working from the same numbers.
- Don’t miss a required withdrawal. With penalty relief behind us, a calendar reminder each fall can save a costly correction later (Brose, 2023).
The bottom line
Inheriting from a parent is often emotional, and tax planning is rarely the first thing on anyone’s mind. You don’t have to make every decision right away. But the sooner you understand which rules apply, the more years you have to spread withdrawals thoughtfully.
If you’ve recently inherited a retirement account, or expect to, I’m always happy to talk through how it fits into your own plan.
This article is for educational purposes only and is not tax, legal, or investment advice. Tax laws and IRS guidance change, and individual circumstances vary. Please consult a qualified tax professional regarding your specific situation. Zenith Wealth Partners is a fee-only fiduciary registered investment adviser.
Works Cited
Brose, T. (2023, April 13). SECURE 2.0 Act – Section 302: Reduction in excise tax on certain accumulations in qualified retirement plans. Schneider Downs. https://schneiderdowns.com/our-thoughts-on/secure-2-act-section-302-summary/
Haynes Boone. (2024, April 23). Specified RMDs waived again for 2024. https://www.haynesboone.com/news/blogs/specified-rmds-waived-again-for-2024
Internal Revenue Service. (2024, July 18). Treasury, IRS issue updated guidance on required minimum distributions from IRAs, other retirement plans; generally retains proposed rules (IR-2024-190). https://www.irs.gov/newsroom/treasury-irs-issue-updated-guidance-on-required-minimum-distributions-from-iras-other-retirement-plans-generally-retains-proposed-rules
Internal Revenue Service. (2026, August 1). Retirement topics – Beneficiary. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
Stimpson, J. (2025, October 9). Tax brackets, inflation adjustments announced for 2026. Accounting Today. https://www.accountingtoday.com/news/irs-announces-inflation-adjustments-for-2026
Fahmin Fardous, CFP® | Zenith Wealth Partners
All written content is for information purposes only. Opinions expressed herein are solely those of Zenith, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to another parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.