Inherited IRA planning gains importance as 10-year withdrawal rule raises tax risks

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Inherited IRA tax risks

Highlights

Heirs receiving inherited IRAs at an average age of 59 with a mean balance of $128,000 now face tax risk under the post-2020 10-year withdrawal rule.
Starting 2025, adult children inheriting IRAs from parents already at required minimum distribution age must take annual RMDs, raising tax complexity.
Strategic Roth IRA conversions during early retirement may reduce heirs' tax burden but can impact senior bonus deductions and IRMAA Medicare premium thresholds.

Withdrawal rules and tax planning

As reported by CNBC, citing Vanguard, heirs receive inherited IRAs at an average age of 59, and the mean balance is $128,000 across nearly 83,000 accounts analyzed in 2024. That timing can create tax pressure because many beneficiaries are still in high-earning years when they must begin drawing down the accounts.

Since 2020, some inherited IRAs have been subject to a 10-year rule that generally requires certain heirs, including adult children, to empty the account by the end of the 10th year after the original owner’s death. Since 2025, some adult children also generally must take required minimum distributions during that period if the original IRA owner had already reached RMD age, usually 73, before death.

Financial advisers say the schedule of withdrawals matters as much as the rule itself. Without annual planning, heirs could leave too much in the account until the final year and then face a large distribution that pushes them into a higher tax bracket, according to James Mayo, founder of IronFjord Wealth Management.

Strategies for account owners and heirs

Experts say original account owners can reduce future tax costs by matching beneficiaries with assets more carefully. Tim Steffen of Baird says families may want to consider each heir’s tax bracket, for example by leaving more IRA assets to a lower-earning beneficiary while directing other tax-advantaged assets elsewhere.

Roth IRA conversions are also a key planning tool for original account owners. Dinon Hughes of Nvest Financial says converting pretax or nondeductible IRA funds into a Roth IRA raises income in the year of conversion, but it can leave heirs with funds that are generally available tax-free, even though certain inherited Roth IRAs still fall under the 10-year rule.

Advisers say early retirement years can be a favorable window for Roth conversions because income may be lower before Social Security payments begin and before required minimum distributions start. But they also warn that higher adjusted gross income can affect other tax provisions, including the $6,000 senior bonus deduction and IRMAA thresholds that raise Medicare Part B and Part D premiums.

Our earlier coverage of Pakistan’s Tax Year 2026 income tax return filing deadline examined growing calls for the Federal Board of Revenue to grant more time after the final return form was issued, with taxpayers citing procedural hurdles. The article also highlighted reported IRIS portal glitches and the push from business groups and tax professionals to extend the deadline to avoid penalties and improve compliance.

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