What to Know Before Making Decisions About an Inherited IRA

There’s no easy way to prepare for inheriting an IRA. It’s not just a financial issue. It usually happens after the loss of someone close, so there’s emotion involved. But the clock doesn’t stop ticking while you process things. The IRS sets deadlines. Miss them, and you might lose flexibility – or worse, end up with a huge tax bill.

If you’ve inherited an IRA or expect to, the first thing to understand is this: the rules changed. And what worked a few years ago might not work now.

The SECURE Act Changed the Rules for Most Non-Spouse Beneficiaries

In 2019, Congress passed the SECURE Act. It removed the “stretch IRA” option for many people. That means most non-spouse beneficiaries must now empty the inherited account within 10 years.

Before the SECURE Act, beneficiaries could stretch distributions over their own lifetime. That kept annual tax hits small. Now, unless you’re exempt, you need to plan how to draw the money out within a decade – without pushing yourself into a higher tax bracket.

Who has to follow the 10-year rule?

• Adult children
• Siblings
• Friends or non-family beneficiaries
• Most trusts named as IRA beneficiaries

Who is exempt?

• A surviving spouse
• A disabled or chronically ill individual
• A beneficiary who is less than 10 years younger than the deceased
• A minor child (but only until they reach age 21; then the 10-year clock starts)

So if you’re not a spouse or in one of the other exceptions, you have to plan for that 10-year window. And if you’re not careful, those distributions can trigger avoidable taxes.

Why Personalized Financial Planning Matters with Inherited IRAs

Inherited IRAs aren’t just about transferring money. They’re about transferring tax burdens, choices, and long-term outcomes. And every decision you make – how much to take out and when – affects your total tax bill and retirement trajectory.

That’s where a personalized plan comes in. No two beneficiaries are in the same spot.

Some common questions that come up:

• Should I take a lump sum now and invest it differently?
• Should I spread withdrawals out over the full 10 years?
• What if I’m still working – will the extra income push me into a new bracket?
• Can I convert the inherited IRA to a Roth?

The right answer depends on your income, goals, family situation, and whether you expect your taxes to go up or down in the future. And that’s the kind of decision that shouldn’t be made with a generic calculator.

This is where Written Care Plan Management helps. It’s a detailed strategy that considers your full financial picture – savings, income, taxes, goals, timing – and builds a step-by-step plan to avoid unnecessary penalties or lost opportunities.

What Happens if You Make the Wrong Move?

Inherited IRAs are unforgiving. Make the wrong move, and the IRS won’t let you redo it.

Some common mistakes people make:

• Missing the 10-year distribution deadline altogether
• Taking a lump sum without understanding the tax consequences
• Rolling over an inherited IRA into their own IRA (not allowed unless you’re a spouse)
• Naming the wrong beneficiary after inheriting it
• Not adjusting the rest of their retirement income planning to account for new taxable income

These aren’t hypothetical issues. In real life, they show up as surprise tax bills, lost benefits, and missed chances to grow that inheritance.

A personalized plan anticipates these issues and solves them ahead of time.

Tax Planning for Inherited IRAs Is Retirement Planning

Many people don’t connect the dots between an inherited IRA and their own retirement. But it’s all part of the same equation. Taking too much out now could raise your taxes, shrink your health care subsidies, or push Social Security into a higher tax rate.

If you’re still working, inherited IRA distributions could spike your adjusted gross income. If you’re retired, those withdrawals could trigger taxes on Social Security benefits or drive up your Medicare premiums.

It’s not just about what’s in the inherited account. It’s about how that account interacts with everything else in your financial life. That’s why it makes sense to treat this as part of your full retirement income planning process – not a one-off decision.

You Don’t Have to Make Every Decision Right Away

Unless you’re a spouse rolling it into your own IRA, you can’t contribute to an inherited IRA. But you do have some time to decide how to handle distributions.

That said, some things must happen quickly:

• If the original account owner didn’t take the required minimum distribution (RMD) in the year they died, the beneficiary must take it before the end of that year
• You’ll need to move the assets into a properly titled inherited IRA – often called a “beneficiary IRA” – to maintain tax-deferred status

After that, you can build a 10-year drawdown plan. That timeline gives you flexibility, but only if you’re deliberate about how you use it.

Some years you might take more, some years less, depending on your income, market performance, and life changes. The important thing is to keep track of what you’ve withdrawn and how it’s impacting your overall tax position.

A Note About Fleming Financial Solutions

If you’re reading all of this and wondering whether it applies to your situation – especially if you’ve already inherited an IRA and aren’t sure what to do next – you’re not alone.

Some people turn to Fleming Financial Solutions for this kind of help. Based on online reviews, clients who have worked with them say the team doesn’t just explain the rules – they help build a clear plan to follow them, avoid penalties, and minimize taxes.

In one review, a client mentioned coming to the team with a heavy tax burden tied to an inherited IRA. According to them, the team at Fleming offered a strategic solution that reduced the stress and helped protect the value of the inheritance.

That kind of feedback suggests they might be worth considering if you’re looking for personalized financial planning focused on real-world, long-term outcomes.

Final Thought: Don’t Let the IRS Decide Your Future

Inherited IRAs are one of those financial events that look simple but are full of traps. And once you make a choice, you usually can’t undo it. That’s why it’s important to slow down, get the full picture, and make a plan before you start taking distributions.

A Written Care Plan that includes retirement income planning and estate coordination helps you take control – rather than letting the IRS or random chance do it for you. Whether you work with a local financial professional or go another route, the key is to treat the inheritance like what it really is: an opportunity that comes with responsibility.

The best time to start thinking it through is before you take the first dollar out.