Inherited IRAs can boost wealth — and trigger a tax bill. Here's how to reduce it
Source: CNBC ·
Inherited IRAs can raise income taxes. Experts explain the 10-year rule, withdrawal timing and Roth conversions for heirs.
From the source
An inherited individual retirement account can be a sizable windfall for some investors — but taxes can take a chunk without proper planning, experts say. On average, heirs receive inherited IRAs at age 59, and the mean balance of those accounts is $128,000, according to a recent Vanguard report that analyzed nearly 83,000 accounts in 2024. "Most people inherit an IRA in their 50s, right at the peak of their earning years, and then have to empty it within 10 years," said certified financial planner Michael Walstedt, founding advisor of Reliant Wealth Advisory in Hoboken, New Jersey. Since 2020, a "10-year rule" applies to some inherited accounts, requiring certain heirs, including adult children, to generally empty the balance by the 10th year after the original account owner's death. If it's a pretax inherited IRA, the 10-year withdrawal timeline can boost adjusted gross income, potentially triggering higher taxes and reducing eligibility for other tax breaks, experts say. Read more…