She Cashed Out Her Father’s $220,000 IRA the Year She Inherited It, on Top of Her $90,000 Salary. Spreading It Across the Full Window Would Have Kept Nearly All of It Out of the Top Brackets She Paid
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.
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Every dollar withdrawn from an inherited traditional retirement account is ordinary income in the year it comes out.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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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. The beneficiary controls the shape of the withdrawals inside the window.
In fairness, grief tends to compress judgment, and the account can feel like a windfall rather than income, so closing it can feel like finishing something. Custodians will process a full distribution on request. Many beneficiaries don't know the window exists, and some believe they must take the money immediately. That ignorance is expensive.
A beneficiary who controls the schedule can align withdrawals with her own income. Take more during unemployment, a sabbatical, reduced hours, or early retirement, or even take less during peak earning years. Someone who expects to stop working within ten years can push a large share into the low-income years on the other side, when a $30,000 distribution might sit entirely in the 12% band. The same logic applies to income-based thresholds outside the tax code, including ACA premium subsidies and college financial aid formulas.
However, spreading has clear limits, and a beneficiary who expects meaningfully higher income later may prefer to pull more forward. A balance small enough to stay inside a single bracket does not benefit from smoothing. Deferring everything to year ten can recreate the original problem: one enormous distribution stacked on top of that year's wages.
A non-spouse beneficiary cannot roll an inherited IRA into her own account. Failure to take a required distribution triggers a 25% penalty on the shortfall, reducible to 10% if corrected within the correction window. An inherited Roth is subject to the same ten-year deadline, but qualified withdrawals are generally tax-free, which favors letting the balance compound as long as possible. State income tax follows the beneficiary's residence rather than the decedent's, which matters substantially when the two live in states with very different rates.
The inherited-IRA ten-year rule is one of several IRS provisions that quietly drain retirement accounts when heirs move without a plan. We mapped it alongside eight others in a free guide here.
Before requesting any distribution from an inherited traditional retirement account, add the proposed withdrawal to your expected wages for the year, subtract your standard deduction, and find the top bracket that taxable income reaches. Repeat for a withdrawal small enough to keep you inside your current bracket. The difference between those two top rates, applied to the inherited balance, is the price of the schedule.
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