A 45-Year-Old Inherits Dad’s $1 Million IRA and Discovers the IRS Already Owns a Chunk of It

A $1 million inherited traditional IRA carries a deferred tax bill that transfers intact to the beneficiary, who must empty it within 10 years.

Adding $100,000 in annual IRA distributions to a $120,000 salary triggers federal rates ranging from 24% to 32%, costing roughly $250,000 in federal taxes over the decade.

Dumping everything in year 10 costs between $80,000 and $100,000 more in federal tax than smoothing withdrawals to stay within the 24% bracket each year.

A 45-year-old opens the estate paperwork, sees $1 million in Dad's traditional IRA, and exhales.

But the account is pretax. Every dollar Dad deferred over 40 years still owes federal income tax at ordinary rates, and now the clock to pay it runs on the beneficiary's calendar. This piece builds on reporting from Kiplinger's coverage of inherited-portfolio traps, which flagged the 10-year drawdown rule and the 25% excise tax on missed required minimum distributions as the two mistakes that quietly cost non-spouse heirs the most.

Traditional IRAs run on deferral. Dad got a deduction on every contribution and never paid tax on 40 years of growth. When a non-spouse inherits, the account transfers intact and the deferred tax bill transfers with it. The IRS's share is baked into the balance.

For a non-spouse beneficiary who is not chronically ill, disabled, a minor child of the decedent, or within 10 years of the decedent's age, the SECURE Act imposes the 10-year rule. As Suze Orman put it on her podcast, non-eligible designated beneficiaries have "10 years to wipe it clean."

The account must be fully distributed by December 31 of the tenth year after the year of death. If Dad died in 2026, the account has to hit zero by December 31, 2036.

Learn 13 Major Retirement Mistakes and Ways To Avoid Them

One investment mistake could create big risks for your retirement. Many investors make the same critical errors: being too conservative, making big bets on "sure things," or paying excessive fees. Any of those blunders can endanger your hard-earned savings.

Now you can learn the mistakes even experienced investors make (and ways you can sidestep them before it's too late) with this new guide: 13 Retirement Mistakes and How to Avoid Them from Fisher Investments. Access your complimentary copy here (sponsor)

There is a second layer. If Dad had already started his own RMDs before he died, the heir also has to take annual RMDs in years one through nine, then empty the account in year 10. That was the rule the IRS finalized in 2024 after years of confusion. Missing an RMD triggers a 25% excise tax on the amount that should have come out, dropping to 10% if the beneficiary corrects it promptly and files Form 5329.