Over the next two decades, an estimated $84 trillion will pass from one generation to the next in the largest wealth transfer in U.S. history. For many families, a significant portion of that wealth sits inside pre-tax retirement plans and traditional IRAs — and the rules for how beneficiaries must handle inherited IRAs have fundamentally changed. If you stand to inherit (or have already inherited) an IRA, understanding these rules and the strategies available to you could save tens of thousands of dollars in taxes. 

The New Rules: The 10-Year Clock

Under the SECURE Act and its successor SECURE 2.0, most non-spouse beneficiaries who inherit an IRA must now fully distribute the account within 10 years. This is a dramatic departure from the old “stretch IRA” rules that allowed distributions over a lifetime. 

Importantly, if the original account owner had already begun taking required minimum distributions (RMDs) before passing, beneficiaries must also take annual RMDs throughout the 10-year window — not just distribute everything by year 10. The IRS has been finalizing guidance on this, so staying current is essential. 

Who is subject to the 10-year rule?

  • Adult children and most other non-spouse beneficiaries
  • Beneficiaries more than 10 years younger than the deceased owner

Notable exceptions: surviving spouses, minor children (until majority), disabled/chronically ill beneficiaries 

 

The Tax Challenge for Working Beneficiaries

Here is where the problem becomes acute. Many people who inherit IRAs today are in their 40s and 50s — precisely the years when their own earned income tends to peak. Stacking IRA distributions on top of an already-high income can push taxable income into the 32%, 35%, or even 37% federal brackets, trigger a 3.8% Net Investment Income Tax (NIIT) surtax, and even cause Medicare premium surcharges (IRMAA) two years later. 

2026 federal income tax thresholds to be aware of (married filing jointly):

  • 32% bracket begins at $403,550 of taxable income (MFJ) 
  • 35% bracket begins at $512,450 of taxable income (MFJ) 
  • 3.8% NIIT surtax applies above $250,000 MAGI (MFJ) / $200,000 (single) 
  • IRMAA Medicare surcharges begin above $218,000 MAGI (MFJ) based on 2024 income 

 

The standard deduction in 2026 is $32,200 for married filing jointly and $16,100 for single filers. For many beneficiaries, this baseline will not be enough to offset the additional income from large distributions — making proactive tax planning essential. 

Key Strategies to Manage Your Tax Exposure

1. Time your distributions strategically

Because the 10-year rule does not require equal annual withdrawals, you have the flexibility to distribute more in years when your income is temporarily lower — a career transition, a sabbatical, a business loss year, or early retirement. Conversely, you can take smaller distributions in peak earning years. This bracket management approach can meaningfully reduce your effective tax rate over the 10-year window. 

2. Use high-distribution years to bunch charitable deductions

Most people never itemize deductions because their charitable giving falls below the standard deduction threshold. But in a year with a large IRA distribution, the math can change dramatically. Consider funding a Donor Advised Fund (DAF) with several years’ worth of charitable contributions in a single year, taking the full itemized deduction against the distribution income, then granting from the DAF over time at your own pace. This can effectively make a portion of your distribution tax-free. 

3. Consider a Charitable Remainder Trust (CRT)

For larger inherited IRAs, a Charitable Remainder Trust is a sophisticated option. The IRA distribution is paid into the trust, which can then spread income payments back to you over many years — significantly reducing the tax impact in any single year. You also receive a partial charitable deduction upfront. This strategy requires an attorney and works best for beneficiaries with a genuine charitable intent. 

4. Redirect your own retirement contributions

If you know you will have forced income from an inherited IRA for 10 years, consider reducing deferrals to your own pre-tax retirement accounts and instead making Roth contributions or Roth conversions. The inherited distributions create taxable income you cannot avoid — you can use that “slot” to simultaneously shift your own retirement savings to tax-free status. 

5. Maximize above-the-line deductions in distribution years

Self-employed beneficiaries can fund a Solo 401(k) or SEP-IRA to partially offset distribution income. All beneficiaries should maximize Health Savings Account (HSA) contributions, which directly reduce MAGI and can blunt NIIT and IRMAA exposure. These strategies work best when planned before year-end. 

A Note on Inherited Roth IRAs

If you inherit a Roth IRA, the 10-year rule still applies — but qualified distributions are income-tax-free. The planning goal shifts from tax minimization to investment optimization. If your parent or loved one did significant Roth conversions during their lifetime, you may be in an enviable position. This underscores the value of coordinating estate and retirement planning across generations. 

 

Every situation is different — let’s talk.

The strategies above interact with each other and with your specific income, family situation, and financial goals. There is no one-size-fits-all approach to an inherited IRA, and the decisions you make in year one can have lasting tax consequences. 

 

Contact your financial advisor to model out your options before your next required distribution.

The 10-year clock is already running.