You Just Inherited an IRA — Now What?
A calm, confident guide for handling a life-changing gift with clarity and care.
Money isn’t supposed to feel complicated. But when it arrives because someone you loved is no longer here — it does. If you’ve inherited an IRA, you’re juggling grief, responsibility, and a very normal fear of “I don’t want to mess this up.”
An inherited IRA can be a meaningful legacy, but it plays by different rules than your own retirement accounts. Good decisions now can save you significant taxes later.
The Reality Most Heirs Don’t Know
Inherited IRAs follow a different rulebook than “regular” IRAs. Rushing often means higher taxes — especially for high earners.
| Question | Regular IRA | Inherited IRA |
|---|---|---|
| Can you contribute? | Yes | ❌ No |
| Can you roll it into your IRA? | Yes | ✅ Often only if you’re a spouse |
| Do withdrawals trigger taxes? | Maybe | ✅ Often (Traditional); Roth usually tax-free |
| Must it be emptied? | Sometimes | ✅ Usually within 10 years for non-spouse heirs |
Step 1: Pause Before You Act
Don’t withdraw until you understand the tax impact
You may have up to 10 years to distribute funds. Acting too fast can push you into a higher tax bracket, trigger penalties, and shrink what you keep.
Step 2: Identify the Account You Inherited
| Type | How withdrawals are taxed |
|---|---|
| Traditional Inherited IRA | Taxed as ordinary income |
| Roth Inherited IRA | Generally tax-free if conditions met; still often must be emptied in 10 years |
| Beneficiary Type | Why it matters |
|---|---|
| Spouse | Can often treat as own IRA; different RMD timing and options |
| Non-Spouse | Typically subject to the 10-year rule |
| Trust Named | Distribution rules may be more restrictive; review before withdrawing |
Pro tip: If a trust is the beneficiary, slow down. Trust-IRA interactions can accelerate taxes. Get advice first.
Step 3: Understand Your Time Horizon
For many non-spouse heirs, the account must be emptied within 10 years. That’s not just a deadline — it’s your tax-planning runway.
- Spread withdrawals across years to manage brackets
- Use lower-income years (career breaks, sabbaticals, early retirement windows)
- Coordinate with other taxable events (bonuses, stock sales)
- Consider charitable windows to offset income (where applicable)
- Avoid a giant lump sum in Year 10 unless there’s a strategic reason
Step 4: Build a Withdrawal Strategy Before Touching the Money
- Create a multi-year income/tax projection to see where withdrawals “fit.”
- Sequence withdrawals in years that minimize bracket creep.
- Review the investment strategy inside the inherited IRA (risk, timeline, liquidity).
- Map charitable tactics if relevant to your situation.
- Revisit annually as income and goals change.
Common Mistakes to Avoid
| Mistake | Why it hurts |
|---|---|
| Cashing out immediately | Often creates an avoidable, large one-year tax bill |
| Ignoring the 10-year rule | Forces a tax-heavy scramble near the deadline |
| Not coordinating with your income | Bracket creep can silently erode the inheritance |
| Overlooking beneficiary setup | Trust rules can accelerate taxation |
| Treating a Roth like a Traditional | Different playbook; don’t waste tax-free growth |
First 90-Day Checklist
- Gather statements and beneficiary documents
- Confirm account type (Traditional vs Roth) and your beneficiary category
- Inventory your income sources and tax bracket
- Sketch a Year-by-Year withdrawal plan (10-year runway)
- Review investments inside the inherited IRA
- Book a review with a fiduciary advisor and your tax professional
A Human Note
It’s okay to feel grateful and sad at the same time. Smart planning doesn’t replace emotion — it protects the legacy behind it.
Talk Through Your Options (15 Minutes)
Quiet, no-pressure help to map a plan that honors the gift and minimizes taxes over the next decade.
Schedule a call · Or learn more about our financial planning process and estate planning coordination.
Compliance Note: This material is for educational purposes only and is not tax, legal, or investment advice. Rules can change and individual circumstances vary. Consult a qualified tax professional before taking action.