Inheriting an IRA From a Parent: Rules, Taxes, and Withdrawal Options
Inheriting an IRA from a parent usually brings up a lot of questions.
What should you do with the account? How quickly should you take the money out? And how much of it will ultimately go toward taxes?
These decisions come at a difficult time. But the choices you make can have a meaningful effect on your taxes and the rest of your retirement plan.
On top of that, inherited IRAs come with their own set of rules to follow.
For many adult children, an inherited IRA generally must be fully withdrawn by December 31st of the 10th year following the parent’s death. You may have flexibility over when withdrawals occur, but some beneficiaries must also take annual Required Minimum Distributions, or RMDs, during that 10-year period.
The key is to think of these 10 years as a planning window rather than a deadline.
What Happens When You Inherit an IRA From a Parent?
When you inherit an IRA from a parent, the account is generally transferred into an inherited IRA in the name of the beneficiary.
As a non-spouse beneficiary, you generally cannot roll the account into your own IRA or treat it as your own retirement account. Instead, the inherited IRA remains connected to the original owner, and special rules apply.
The specific rules depend on several factors, including:
- Whether the account is a traditional or Roth IRA
- When your parent died
- Whether your parent was taking RMDs
- Your relationship to the original owner
- Whether you qualify for one of the exceptions to the 10-year rule
This article focuses primarily on an adult child who inherits an IRA from a parent who died in 2020 or later. Note that there are different rules in play for IRAs inherited before 2020.
What Is the 10-Year Rule for an Inherited IRA?
The 10-year rule generally requires many non-spouse beneficiaries to withdraw the entire inherited IRA by December 31st of the 10th year following the original owner’s death.
For example, suppose a parent dies at some point during 2026.
The inherited IRA would generally need to be fully withdrawn by December 31st, 2036.
There are certain beneficiaries who may qualify for different options without needing to follow the 10-year rule. These include:
- A surviving spouse
- A minor child of the account owner
- A disabled or chronically ill beneficiary
- Someone who is not more than 10 years younger than the original owner
However, for most adult children inheriting a parent’s IRA, the 10-year rule will commonly apply.
Do You Have to Take Money Out Every Year?
It depends, but not always. This is one of the most confusing parts of the inherited IRA rules.
Whether you have to take money out every year ultimately depends on whether your parent died before or after their required beginning date. This “required beginning date” is the point at which the original IRA owner was required to begin taking RMDs from the account.
Not familiar with RMDs? Read this brief article we wrote about them.
If your parent died before their required beginning date
You generally do not have to take a distribution every year.
You may have flexibility over when withdrawals occur, provided the entire inherited IRA is emptied by December 31st of the 10th year following the year of death.
More on your options below…
If your parent died after their required beginning date
You will generally need to take annual beneficiary RMDs during years one through nine and still empty the account by the end of year 10.
The annual RMD is only the minimum required withdrawal. You may take more than that amount whenever it makes sense for your plan.
This caveat with RMDs means you may not be able to leave the entire account untouched until the final year.
Do Not Overlook the Year-of-Death RMD
Here’s something else to watch out for…
If your parent was required to take an RMD the year they passed but had not yet withdrawn the full amount, the remaining year-of-death RMD generally still needs to be taken.
This is something we routinely see missed. If you’re not sure, call the company who holds their retirement accounts.
This requirement is separate from your required withdrawals which begin the following year.
This is one reason it is important to check the account early rather than assuming nothing needs to happen until the following tax year.
What Are Your Inherited IRA Withdrawal Options?
The IRS rules create a deadline, but they don’t really tell you exactly how much to withdraw beyond any annual RMD that may apply.
That leaves room for several possible approaches. Here’s what we evaluate for clients:
1. Spread withdrawals across the 10 years
One option is to take money out gradually.
Spreading withdrawals across several years may prevent a large amount of taxable income from landing on a single tax return. It can also make cash flow and estimated tax payments more predictable.
However, simply dividing the account balance by 10 may not produce the best result.
Your income, account growth, tax brackets, and retirement timeline can all change during the 10-year period.
2. Take more during lower-income years
Some years may be better than others for taking taxable withdrawals.
For example, you may have a lower-income year if you:
- Recently retired
- Have not started Social Security yet
- Are delaying a pension
- Are between jobs
- Have unusually large deductions
- Expect your income to rise later
Taking a larger inherited IRA distribution during one of these years may allow some of the money to be taxed at a lower rate.
This can be especially valuable for someone who inherits an IRA shortly before retirement. The years between retirement and the start of Social Security or personal RMDs are sometimes among the lowest-tax years available.
3. Leave more invested until later
You may prefer to keep more of the inherited IRA invested and defer larger withdrawals until later in the 10-year period. This, of course, can help provide more time for the funds to grow over the long-term.
But waiting comes with a tradeoff.
If the account continues to grow, you could be left with a much larger taxable balance as the deadline approaches. Those withdrawals may then have to be added on top of wages, Social Security, pensions, personal IRA RMDs, or other income.
Waiting can make sense for some, but it should be intentional rather than the result of overlooking the account.
4. Withdraw the money sooner
There is generally no requirement to keep an inherited IRA open for all 10 years.
You could withdraw some or all of the account earlier.
That might make sense if you need the money, expect tax rates to rise, want to reduce future RMDs, or have an immediate planning opportunity.
Of course, this could create a significant tax bill so it ultimately depends on the size of the account and the rest of your income.
How Are Inherited IRA Withdrawals Taxed?
Withdrawals from a traditional inherited IRA are generally included in your taxable income for the year in which you receive them.
For example, if you withdraw $40,000 from an inherited IRA, that $40,000 will generally be added to your other taxable income.
Be aware that the withdrawal may affect more than your federal tax bracket.
A larger withdrawal could also:
- Increase your state income taxes
- Cause more of your Social Security benefits to become taxable
- Increase future Medicare Part B and Part D premiums
- Reduce certain deductions or tax credits
- Affect health insurance subsidies before age 65
- Limit the amount of your own IRA that you can convert to a Roth at a preferred tax rate
- Increase taxes on investment income
Every withdrawal should be part of the broader plan and tax picture for the year.
Is there a 10% early-withdrawal penalty?
Generally, no.
Distributions made to a beneficiary after the death of the original IRA owner are generally exempt from the 10% early-withdrawal penalty, even when the beneficiary is younger than age 59½.
The distribution would still be subject to regular income tax (unless it’s a Roth IRA), but the usual early-withdrawal penalty generally does not apply.
How Can an Inherited IRA Affect Medicare Premiums?
Inherited IRA withdrawals increase your modified adjusted gross income.
For someone enrolled in Medicare, a larger distribution could cause Medicare Part B and Part D income-related surcharges, commonly known as IRMAA.
Medicare generally uses income from two years earlier when determining these surcharges. This means an inherited IRA withdrawal taken this year could affect Medicare premiums two years from now.
One large distribution may therefore create costs that are not immediately obvious when the withdrawal is made.
This does not mean you should always avoid an IRMAA surcharge. Sometimes recognizing additional income is still the better long-term decision.
The important thing is to estimate the total cost before taking the distribution rather than discovering the effect later.
How Can an Inherited IRA Affect Social Security Taxes?
Inherited IRA distributions can also cause a larger portion of your Social Security benefits to become taxable.
The IRS uses a formula based partly on your other income to determine how much of your Social Security is included in taxable income.
Because inherited IRA withdrawals increase that other income, a distribution may cause additional Social Security benefits to become taxable at the same time.
This can create a higher effective tax rate than the tax bracket alone might suggest.
For someone who has not yet started Social Security, this may create an argument for taking more from the inherited IRA before benefits begin.
That will not always be the case, but it is worth comparing.
What If You Inherit a Roth IRA From a Parent?
An inherited Roth IRA is also generally subject to beneficiary rules we’ve covered above.
For many adult children, the account still needs to be emptied by the end of the 10th year.
However, Roth IRA withdrawals are often tax-free.
Withdrawals of contributions are tax-free, and earnings will generally be tax-free if the Roth IRA satisfied the applicable five-year holding requirement. If the account had not yet met that requirement, earnings withdrawn too early may be taxable.
Because the withdrawals may be tax-free, it may make sense to leave an inherited Roth IRA invested until later in the 10-year period to provide more time for tax-free growth.
Even so, the account still needs to be monitored so the year-10 deadline is not missed.
An Example of Inherited IRA Withdrawal Planning
Suppose you inherit a $300,000 traditional IRA from a parent at age 62.
You plan to retire at 64 and start Social Security at 67. Your own RMDs will begin later.
You could withdraw the full $300,000 immediately, but that may push a substantial portion of the distribution into higher tax brackets.
You could also wait until year 10, but that may create a large taxable withdrawal after Social Security has started and while the remaining account has had time to grow.
A third option may be to take smaller withdrawals while you are working, then larger withdrawals during the lower-income years between retirement and Social Security.
For example:
- Smaller distributions at ages 62 and 63
- Larger distributions from ages 64 through 67
- Remaining balance distributed before the year-10 deadline
The exact amounts would depend on tax projections, investment returns, spending needs, Medicare timing, and your other retirement accounts.
The point is not that one pattern is always best.
The point is that the timing should be coordinated.
Common Inherited IRA Mistakes
Waiting until year 10 without running a tax projection
Deferring taxes can feel appealing, but waiting may create a larger account balance and a much larger distribution later.
Assuming the 10-year rule eliminates annual RMDs
Annual RMDs may still apply when the original owner died after their required beginning date. Penalties can apply if you miss this.
Missing the year-of-death RMD
If your parent did not complete a required distribution before death, the remaining amount may still need to come out by year-end.
Taking the entire account without estimating the tax cost
A lump-sum withdrawal can push income into higher tax brackets and affect other parts of the plan.
Forgetting about Medicare’s two-year lookback
A distribution may raise Medicare premiums two years after the income appears on the tax return.
Focusing only on the minimum distribution
Taking only the annual RMD may satisfy the rule for that year, but it does not guarantee that the account will be distributed tax-efficiently by the end of year 10.
How to Build an Inherited IRA Withdrawal Plan
Before deciding how much to withdraw, it can help to answer a few questions:
- Does the 10-year rule apply to you?
- Was your parent already subject to RMDs?
- Was the year-of-death RMD completed?
- Is the account a traditional or Roth IRA?
- What income will you have during each of the next 10 years?
- When will you retire and begin Social Security?
- When will your own RMDs begin?
- Could distributions affect Medicare premiums?
- Are Roth conversions also part of your plan?
- Is there a lower-income year when a larger distribution may make sense?
From there, you can compare different withdrawal strategies instead of making the decision one year at a time.
This is especially helpful when the inherited IRA is large relative to your normal income.
Bottom Line: Think of It as a 10-Year Planning Window
It is easy to look at the 10-year rule as nothing more than a deadline.
But the real planning opportunity is deciding when the income should appear on your tax return.
The lowest-tax approach may involve taking more in some years and less in others. It may mean accelerating withdrawals before Social Security or Medicare. In other cases, it may make sense to keep more of the account invested for a while.
There is no single withdrawal strategy that works for every inherited IRA.
The goal is to coordinate the account with your taxes, retirement income, Medicare premiums, investment plan, and other financial decisions.
In other words, the objective is not merely to empty the account on time.
It is to make thoughtful use of the 10-year planning window.
Need Professional Retirement Planning Help?
Schedule a Free Retirement Review
Learn how to lower taxes, invest smarter, and maximize your retirement.
Frequently Asked Questions
How long do I have to withdraw an inherited IRA from a parent?
Many adult children must fully withdraw the account by December 31st of the 10th year following the year of the parent’s death.
Do I have to take an inherited IRA distribution every year?
It depends. If your parent died after reaching their required beginning date, annual beneficiary RMDs will generally apply. If they died before that date, you may have more flexibility, but the account must still be emptied by the year-10 deadline.
Are inherited IRA withdrawals taxable?
Withdrawals from a traditional inherited IRA are generally taxable as ordinary income. Qualified distributions from an inherited Roth IRA are generally tax-free (as long as Roth IRA holding period rules are met).
Is there an early-withdrawal penalty on an inherited IRA?
Distributions to a beneficiary after the original owner’s death are generally exempt from the additional 10% early-withdrawal tax, regardless of the beneficiary’s age.
Can I roll my parent’s IRA into my own IRA?
A non-spouse beneficiary generally cannot combine a parent’s IRA with their own IRA. The account normally needs to remain titled as an inherited IRA.
Can I leave an inherited IRA untouched for 10 years?
Possibly, if the original owner died before their required beginning date. If the owner died after that date, annual RMDs will generally be required. Either way, the account must generally be fully distributed by the end of year 10.
Can inherited IRA withdrawals increase Medicare premiums?
Yes. Taxable withdrawals can increase modified adjusted gross income and may trigger higher Medicare Part B and Part D premiums two years later.
Should I withdraw an inherited IRA before starting Social Security?
It may make sense when the years before Social Security are lower-income years. However, the decision should be compared with your tax brackets, Medicare timing, other retirement accounts, and expected future income.
Disclaimer: None of the information provided herein is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement, of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. The content is provided ‘as is’ and without warranties, either expressed or implied. Next Adventure Financial LLC does not promise or guarantee any income or particular result from your use of the information contained herein. Under no circumstances will Next Adventure Financial LLC be liable for any loss or damage caused by your reliance on the information contained herein. It is your responsibility to evaluate any information, opinion, or other content contained.
Welcome to the Next Adventure Financial blog, where we share insights for people 50+ who want to lower taxes, invest smarter, and retire confidently.
About the Author
Cody Lachner, CFP®, EA, is a fiduciary financial advisor & retirement planner and founder of Next Adventure Financial in Lafayette, Indiana. He specializes in helping people aged 50+ who want to lower taxes, invest smarter, and avoid costly mistakes in retirement. Cody works with clients virtually across the U.S. and is known for making complex topics like retirement planning, Social Security and tax planning easy to understand.
