If a Parent Dies at 71, an Inherited IRA Can Sit Untouched for Nine Years — But Year 10 Can Bring a 37% Tax Hit, and Advisors Prefer This Withdrawal Plan

Quick Read

• Holding a $500,000 inherited IRA until year 10 can generate $167,859 in federal tax, an effective rate of 33.6%.

• Taking $50,000 a year keeps the withdrawals in the 24% bracket and cuts the tax bill by $47,859 versus a year-10 lump sum.

• If the IRA owner died before age 73, no annual withdrawals are required in years 1 through 9. The only hard deadline is in year 10.

• At the national average savings rate, $40,000 earns about $150 a year. In one of the top high-yield accounts available now, that same balance can earn $1,200 or more. Compare current rates side by side.

A father left behind a $500,000 traditional IRA after dying at 71, naming his daughter as the sole beneficiary. She was 48, unmarried, and earned enough to report $150,000 of taxable income each year. The custodian’s paperwork showed that she would not have to take required withdrawals until the final year.

If she leaves the account untouched, nothing appears on her tax return for nine years. Then, when the deadline arrives, she takes the full $500,000 at once. For simplicity, assume the balance does not grow over the decade.

Under that approach, her taxable income in that year would reach $650,000, and she would owe $167,859.25 in federal tax on the inherited IRA alone.

Death Before 73 Turns Off Annual RMDs

Section 401 of the SECURE Act amended section 401(a)(9) of the tax code and changed the required minimum distribution rules for designated beneficiaries. Most adult children fall into the group with the least flexibility. IRS Publication 590-B defines “eligible designated beneficiaries” as the owner’s surviving spouse, minor child, disabled individual, chronically ill individual, or someone no more than 10 years younger than the IRA owner. A healthy 48-year-old daughter does not qualify.

Everyone else must empty the account by December 31 of the year that includes the 10th anniversary of the owner’s death. The IRS example says that if the owner died in 2025, the account must be fully distributed by December 31, 2035.

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The Analysis Is Already There

Thousands of banks compete for savings deposits, and the differences are often hidden in minimum-balance rules, fee schedules, and teaser rates that later fall away.

Rates and offers change frequently, so the figures shown reflect current terms.

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The father’s age at death determines what happens in years 1 through 9. SECURE 2.0 pushed the required beginning date to age 73 for workers born on or after January 1, 1951. Because he died at 71, before reaching that age, no distribution is required for any year before the 10th year, according to Publication 590-B. If he had died at 74, annual RMDs based on life expectancy would have been required each year. Those rules come from final regulations published on July 19, 2024.

Missing the year-10 deadline triggers an excise tax equal to 25% of the amount by which the required minimum distribution exceeds the amount actually withdrawn under 26 U.S.C. § 4974(a).

Year 10 Taxed at 2026 Rates

The figures below use 2026 single-filer brackets as a proxy for future years. In 2026, the top federal rate remains 37% for single taxpayers with income above $640,600. Income over $256,225 is taxed at 35%.

Most of the inheritance is taxed at 35%, and the final dollars spill into the 37% bracket. Under 26 U.S.C. § 408(d), IRA distributions count as income in the year they are received, so the beneficiary cannot spread one large withdrawal across multiple tax years.

A Bracket-Filling Strategy Saves Almost $48,000

Advisors usually map withdrawals to the beneficiary’s tax bracket. In 2026, the 24% bracket for single filers runs up to $201,775, with the 32% rate starting above that. With $150,000 of other taxable income, she has $51,775 of room left in the 24% bracket each year.

Ten equal withdrawals of $50,000 fit within that space. Each distribution adds $12,000 of tax, or $120,000 over 10 years. Compared with waiting for a year-10 lump sum, that trims federal tax by $47,859.25.

In practice, the gap can be even larger. An untouched account may keep growing, pushing the year-10 balance above $500,000 and moving more dollars into the 35% and 37% brackets. Advisors also tend to take larger withdrawals in low-income years, such as a job gap, a sabbatical, or the first year of early retirement, and smaller amounts in years when bonuses are paid.

Steps to Consider Before December 31

As the year winds down, Kiplinger noted that inherited IRA beneficiaries have important decisions to make before December 31.

The key number is $47,859.25. On a $500,000 inherited IRA, that is the federal tax difference between waiting until year 10 and taking withdrawals in smaller annual pieces.