If you’ve recently inherited a traditional IRA from a parent, the rules of the game have changed — and for working professionals in their peak earning years, the tax stakes are higher than most people realize. The IRS finalized its long-awaited inherited IRA regulations in 2024, and as of 2025, annual required minimum distributions (RMDs) are back on the table for most non-spouse beneficiaries.

Here’s what you need to know, plus a real client case study showing how proactive planning can potentially save thousands in unnecessary taxes.

What Is an RMD, Anyway?

A required minimum distribution (RMD) is the amount the IRS forces you to pull out of a tax-deferred retirement account each year, starting at a specified age. The current RMD age is 73 (rising to 75 in 2033 under SECURE Act 2.0). The reason is simple: the IRS gave you a tax break going in, and now they want their share coming out.

If you skip an RMD, the penalty is steep — historically 50%, now reduced to 25% of the shortfall (or 10% if corrected within two years).

RMDs on Inherited IRAs: The Old Rules vs. the New Rules

The Old Rules (Pre-2020): The “Stretch IRA”

Before 2020, if you inherited an IRA from a non-spouse, you could “stretch” distributions over your own life expectancy. A 50-year-old who inherited from a parent could spread withdrawals over 30+ years — keeping annual taxable income low and letting the account compound tax-deferred for decades. It was one of the most powerful estate planning tools available.

The New Rules (Post-SECURE Act): The 10-Year Rule

The SECURE Act of 2019 effectively killed the stretch IRA for most non-spouse beneficiaries. If you inherited a retirement account from someone who died on or after January 1, 2020, you generally must empty it within 10 years.

The IRS’s 2024 final regulations clarified one big question that had been hanging over taxpayers for years: Do you have to take annual RMDs during the 10-year window, or can you wait until year 10?

The answer:

• If the original owner had already started their own RMDs (i.e., was past their required beginning date): You must take annual RMDs in years 1–9 and empty the account by December 31 of year 10.
• If the original owner died before starting RMDs: No annual RMDs required — just empty the account by year 10.

Eligible designated beneficiaries (surviving spouses, minor children, disabled or chronically ill individuals, and beneficiaries less than 10 years younger than the decedent) get more flexible treatment and may still stretch distributions.

For everyone else? Welcome to the 10-year clock.

Case Study: Mark and Lisa, Both 58, Both Working

Let me walk you through a recent client situation. (Names and details changed for privacy.)

The setup: Mark and Lisa are a married couple, both 58, both still working in professional roles. Combined W-2 income: about $330,000. They live in California, which puts them squarely in the 24% federal marginal bracket plus 9.3% California state tax — a combined marginal rate of roughly 33%.

In 2025, Lisa’s mother passed away at age 84, leaving Lisa a traditional IRA worth $420,000. Because Mom was well past her required beginning date, the IRS rules required Lisa to:

1. Take her first annual RMD by December 31, 2026 (using the Single Life Expectancy table based on her age),
2. Continue taking annual RMDs through 2034, and
3. Fully drain the account by December 31, 2035.

The first-year RMD was relatively modest — about $15,500. But here’s the trap: every dollar of that distribution lands on top of her existing income, taxed at her highest marginal rate. And if she does nothing, she’ll owe roughly $5,100 in combined tax on that first RMD alone — and the required amounts grow each year as her divisor shrinks.

Worse, if she waits and takes the bulk in year 10, she could face a $200,000+ distribution in a single year, potentially pushing her into the top federal bracket and triggering additional Medicare surtaxes.

What We Recommended

Here’s the plan we built for Mark and Lisa:

1. Take the minimum required amount during high-income years. While both spouses are working, every dollar pulled is taxed at their peak rate. We satisfied the RMD and nothing more in years 1–3.
2. Front-load larger distributions in retirement years. Lisa plans to retire at 63, Mark at 65. Those gap years between retirement and Social Security/RMD age are typically their lowest-income window. We mapped out larger inherited IRA distributions in years 5–9 to take advantage of lower brackets.
3. Increase pre-tax 401(k) contributions. Both spouses are now maxing out, including catch-up contributions (they’re over 50). This offsets a meaningful portion of the inherited IRA income.
4. Coordinate withholding. Rather than getting surprised at tax time, we elected federal and state withholding directly from the inherited IRA distribution to avoid underpayment penalties.
5. Plan around IRMAA and other thresholds. Lisa’s distributions in her early 60s won’t impact Medicare premiums yet, but timing matters once she hits 63 — the two-year lookback applies. We’re modeling this carefully.
6. Revisit asset location. Inside the inherited IRA, we shifted toward investments where tax-deferred growth provides the most benefit during the holding period.

The projected savings over the 10-year window: roughly $40,000 in lifetime tax, simply by sequencing distributions intelligently.

Your Inherited IRA Checklist

If you’ve inherited an IRA — or expect to — here’s where to start:

• Confirm your beneficiary classification. Are you a designated beneficiary, eligible designated beneficiary, or non-designated beneficiary? This determines everything.
• Determine the decedent’s Required Beginning Date (RBD) status. Were they already taking RMDs? This decides whether annual distributions are required.
• Title the account correctly. It must be titled as an “inherited IRA” — never roll it into your own (unless you’re a surviving spouse).
• Calculate your annual RMD. Use the IRS Single Life Expectancy Table. Your custodian can help, but verify the math.
• Project your 10-year tax picture. Map out expected income, retirement timing, and tax brackets for each year.
• Don’t default to year-10 withdrawal. Lump-sum distributions almost always cost more in tax than smart sequencing.
• Coordinate withholding to avoid quarterly estimated tax headaches.
• Watch for income thresholds: IRMAA, NIIT (3.8%), AMT, and state-level taxes.
• Update your own beneficiary designations. Inheriting an IRA is a great prompt to review your own estate plan.

A Final Thought

The inherited IRA rules are some of the most complex in the tax code right now, and the tax cost of “winging it” can run well into five figures — sometimes six. Most of that cost is avoidable with a thoughtful, multi-year plan.

If you’ve recently inherited a retirement account — or expect to in the coming years — schedule a free consultation and we’ll walk through your specific situation together. Every plan depends on your income, retirement timeline, and goals.

– Arash Navi, CFA®, CPA, CFP® | Senior Wealth Manager

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