I Inherited a $400,000 IRA. Not Following the 10-Year Rule Could Cost Me Over $120,000 in Taxes.

I Inherited a $400,000 IRA. Not Following the 10-Year Rule Could Cost Me Over $120,000 in Taxes.

SmartAsset Team

Wed, September 9, 2026 at 3:00 PM GMT+3 4 min read

A $400,000 inherited IRA can become much more expensive if you get the withdrawal timing wrong. Many non-spouse beneficiaries must empty the account within 10 years, and some also have annual RMDs. Delaying distributions could concentrate more taxable income into later years and potentially push more of your money into higher tax brackets.

How the 10-Year Rule Can Turn Into a Larger Tax Bill

For many non-spouse beneficiaries, an inherited IRA must be emptied by December 31 of the year containing the 10th anniversary of the original owner's death. Certain beneficiaries qualify for different rules.

The 10-year deadline may not be the only requirement. If the original owner died on or after their required beginning date, a non-spouse beneficiary subject to the 10-year rule generally must also take annual RMDs during the 10-year period.

Missing a required distribution can trigger an excise tax of up to 25% of the amount not withdrawn. This makes it important to know whether annual withdrawals apply instead of assuming you can leave the entire account untouched until year 10.

Traditional inherited IRA distributions are generally taxed as ordinary income. Leaving a large amount until the final years could force you to withdraw more at once, potentially pushing more of the $400,000 into higher tax brackets.

A financial advisor can help you time inherited IRA withdrawals to manage taxes and meet the 10-year deadline.

How the 10-Year Rule Could Lead to More Than $120,000 in Taxes

Consider a single filer with $100,000 of taxable income before inherited IRA withdrawals. To isolate the effect of timing, the $400,000 inherited IRA does not grow and 2026 federal tax brackets remain unchanged throughout the 10-year period.

Taking $40,000 annually would increase taxable income to $140,000 each year. The federal income tax would be calculated as follows:

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Without the IRA distribution, $100,000 of taxable income would produce $16,712 in federal income tax. The $40,000 withdrawal therefore adds $9,486 to the annual bill. Over 10 years, the additional federal tax attributable to the $400,000 of inherited IRA distributions would total approximately $94,860.

Now consider what happens if you leave the full $400,000 until the 10-year deadline and withdraw it in one year. Taxable income would jump from $100,000 to $500,000:

The $500,000 of taxable income would produce approximately $143,769 in federal income tax. After subtracting the $16,712 owed on the original $100,000 of income, about $127,057 would be attributable to the inherited IRA withdrawal.

Under these assumptions, spreading the $400,000 across 10 years would result in about $32,200 less federal income tax than withdrawing the full balance in one year. Actual results will depend on your income, filing status, future tax brackets, investment growth, deductions and the inherited IRA rules that apply to you.

How to Avoid a Lump Sum Inheritance Tax Hit

Spreading inherited IRA withdrawals across the 10-year period can reduce the amount that becomes taxable in any single year. You could also plan larger distributions for years when your salary or other taxable income is lower. The goal is to empty the account by the deadline without leaving a large balance that could push more income into higher tax brackets.

Your withdrawal schedule should account for your current income, expected changes in earnings and any annual RMDs that apply. A financial advisor can help you compare distribution amounts across different years and build a strategy for meeting the 10-year deadline while managing the potential tax impact.

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1. Publication 590-B (2020), Distributions from Individual Retirement Arrangements (IRAs) | Internal Revenue Service. (n.d.). Www.Irs.Gov. Retrieved September 8, 2026, from https://www.irs.gov/publications/p590b

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2. "IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments from the One, Big, Beautiful Bill | Internal Revenue Service." https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill. Accessed Aug. 27, 2026.

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