Cashing out a $220,000 inherited IRA in one year on top of a $90,000 salary pushed the top slice of income into the 35% tax bracket. Spreading the same inheritance across ten $22,000 annual withdrawals would have kept all inherited money taxed at no higher than 22%. Beneficiaries control the timing of withdrawals within the 10-year window, allowing them to pull more during low-income years and less during peak earning years.
Read More: Learn 7 secret wealth tips high net worth investors use that most investors miss (sponsor) She was 47, a project manager earning $90,000 a year, when her father died and left her his traditional IRA worth roughly $220,000. Within months, she called the custodian and requested the full balance, which arrived in her checking account a week later. She used part to pay down her mortgage and kept some in savings.
What she did not understand until the following April was that the entire $220,000 had been added to her wages for the year, with the top slice taxed at a rate her father, a retired teacher, had never paid. Every dollar withdrawn from an inherited traditional retirement account is ordinary income in the year it comes out. Brackets fill from the bottom, and her salary fills them first, so the inherited money starts stacking where her wages left off.
For a single filer in tax year 2026, the 22% rate applies above $50,400, the 24% rate above $105,700, the 32% rate above $201,775, and the 35% rate above $256,225. Her salary alone left her in the 22% band, but when you add the full $220,000, subtract the $16,100 standard deduction, and tax the last slice at 35%, you get a meaningful chunk in the 32% band and most of the rest at 24%. Spread instead across ten roughly equal withdrawals of about $22,000, her total taxable income each year would have stayed below $105,700, meaning the inherited money would have topped out at 22%.
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Get your guide here (sponsor) Under the SECURE Act, most non-spouse beneficiaries must empty an inherited retirement account by the end of the tenth year after the original owner's death. If the original owner had already begun required minimum distributions, the beneficiary generally must continue taking annual RMDs and then clear the balance by year ten. If the owner had not yet reached the required beginning age, the beneficiary can take nothing for nine years and empty the account in year ten, or take any pattern in between.
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