I Inherited $500,000 in a Traditional IRA. Here’s Why Delaying My First Withdrawal Could Save $85,000.

Taking distributions from an inherited traditional IRA can increase your taxable income and potentially push you into higher tax brackets. But if you expect your income to fall in future years, delaying your first withdrawal could allow you to take more money when your tax rate is lower. Here’s how that strategy could potentially save $85,000 in federal income taxes on a $500,000 inherited IRA.

When You Can Delay Your First Inherited IRA Withdrawal

Most non-spouse beneficiaries who are not eligible designated beneficiaries must empty an inherited IRA by the end of the 10th year following the original owner’s death. However, whether you can delay your first withdrawal depends partly on when the original owner died.

If the original owner died before their beginning date for required minimum distributions (RMDs), beneficiaries subject to the 10-year rule generally don’t have to take distributions in years one through nine. If the owner died on or after that date, annual beneficiary RMDs generally apply during the 10-year period.

Here’s how the distribution requirements generally differ:

A financial advisor can help you time inherited IRA withdrawals to manage taxes.

How Delaying and Spreading Inherited IRA Withdrawals Could Save $85,000

Let’s suppose you inherit a $500,000 traditional IRA while still working and have $210,000 in taxable income that year. You expect to retire the following year, when your other taxable income will fall to $10,000. If the inherited IRA rules allow you to skip a distribution in the first year, you could wait until after retirement to begin withdrawals.

Withdrawing the entire $500,000 while still working would bring your taxable income up to $710,000. Here’s how federal income tax breaks down using the 2026 single-filer brackets: ¹

Without the IRA withdrawal, federal income tax on $210,000 would be $43,656. So, taking the $500,000 lump sum adds roughly $175,001 in taxes.

Now, let’s consider waiting until retirement and withdrawing $100,000 annually for five years. With $10,000 of other taxable income, each withdrawal would bring your taxable income to $110,000.

The first $10,000 of taxable income generates $1,000 in federal tax, so each $100,000 IRA withdrawal adds $17,998. Over five years, that comes to $89,990.

By waiting until retirement and spreading the withdrawals over five years, you’d pay $89,990 in additional federal tax attributable to the IRA distributions instead of $175,001 while working. That’s $85,011 less under these assumptions.

This example assumes fully taxable distributions, unchanged 2026 brackets and no investment gains or losses. Actual taxes and inherited IRA distribution requirements may vary.

Use the 10-Year Window to Plan Your Withdrawals

The 10-year window may give you some flexibility to manage distributions over time, depending on the inherited IRA rules that apply to you. The account balance can also change while it remains invested. Market gains could increase the amount available later, while losses might reduce it.

Consider how withdrawals overlap with Roth conversions, capital gains, Social Security, pensions and other sources of income. Mapping these across multiple years can reduce the chance that several taxable items are concentrated at the same time.

A financial advisor may be able to help you develop an inherited IRA strategy based on your finances.

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