Wealth Management for Inherited IRAs  

 At Plancorp, we help clients better understand their options and make informed planning decisions—not just about Required Minimum Distributions (RMDs), but about how an inherited IRA fits into their entire financial life.

If you inherited from your spouse

Spouses are typically given more flexibility and additional planning options. Spouses can choose to take a spouse’s IRA as their own, which may result in smaller annual RMDs. Or spouses can choose to maintain a separate Inherited IRA, which has benefits in certain situations. These decisions can significantly impact retirement timing, tax exposure, and long‑term cash flow. Either way, the SECURE Act’s 10-Year Rule does not apply to spouses.

If you inherited from a parent or other loved one

Non‑spouse beneficiaries are often subject to stricter timelines and fewer options, including the SECURE Act’s 10‑Year Rule. Only a small category of non-spouse beneficiaries fall outside of the 10-year rule: minor children, documented disabled or chronically ill individuals, and beneficiaries who are no more than 10 years younger than the deceased (perhaps an unmarried partner or sibling). Everyone else has 10 years to distribute the value of the IRA.

Treating an inherited IRA the same way as your traditional accounts can lead to missed deadlines, unnecessary taxes, or penalties.

What makes inherited IRAs especially challenging is that the most appropriate strategy depends on multiple variables:

Your relationship to the original account owner

Inherited IRA rules change significantly depending on whether you are a spouse, non-spouse, or an eligible designated beneficiary. Each category comes with different distribution options, timelines, and planning opportunities.

Whether the account is traditional or Roth

Traditional and Roth inherited IRAs are taxed very differently. Traditional IRAs create taxable income when distributions are taken, while Roth IRAs may allow for tax-free distributions if certain requirements are met, including holding period rules. Both can still be subject to strict distribution deadlines that affect planning.

The age of the original owner at death

The original owner’s age matters because it helps determine whether Required Minimum Distributions (RMDs) had already begun. This single detail can change whether annual distributions are required during the 10-year period (more on that later) or whether beneficiaries have more flexibility in timing withdrawals.

If the account owner had already begun taking RMDs, beneficiaries may be required to continue annual distributions. Missing this distinction is one of the most common and costly mistakes that beneficiaries make.

Your current income, tax bracket, and long-term goals

Distributions from an inherited IRA may stack on top of your existing income. Without coordination, withdrawals can push you into higher tax brackets, increase Medicare premiums, or trigger other unintended tax consequences.

Inherited IRA decisions should support your broader financial goals, not disrupt them. Whether you plan to retire early, fund education, reduce risk, or build generational wealth, the timing and strategy of distributions should align with what matters most to you.

At Plancorp, we take a holistic approach to helping our clients manage inherited IRAs. We don’t look at the IRA in isolation. Rather, we look at how each decision impacts your taxes, cash flow, investments, and long-term plans — today and years down the road.

Early planning is especially important. Many of the costliest mistakes with inherited IRAs happen in the first year, before beneficiaries fully understand their options.

Understanding the 10-Year Rule Under the SECURE Act

Many beneficiaries know the 10-year deadline exists but aren’t sure how it actually works. Here’s a brief overview:

Beginning in 2020, the SECURE act states that non-spouse beneficiaries must withdraw the entire IRA balance within 10 years.

The 10-year clock begins the year following the deceased IRA owner’s death.

For example:

• The decedent passes in 2025
• The 10-year clock begins at the start of 2026
• The entire balance must be withdrawn by the end of 2035

There is flexibility within this rule, but without a strategy, that flexibility can lead to large, avoidable tax bills in later years. It’s best to work with a fiduciary advisor to make sure you don’t trip up on the complexities of the SECURE act.

Determining Whether Annual RMDs Apply

One of the most confusing aspects of inherited IRAs is whether annual Required Minimum Distributions are required during the 10-year period.

In some situations, beneficiaries must take distributions every year. In others, they can wait and still comply with the rules. The determining factor is often whether the original account owner had already started taking RMDs before they passed away.

Because this rule is misunderstood so often, it’s common for beneficiaries to either take distributions they didn’t need to take or miss ones they were required to take. Both outcomes can be costly.

Traditional vs. Roth Inherited IRAs

For traditional inherited IRAs, distributions are typically taxed as ordinary income. When those withdrawals stack on top of your existing earnings, they can push you into higher tax brackets or create unexpected tax consequences.

If the inherited IRA is a Roth account, beneficiaries often view them as “simple” because qualified distributions are generally tax-free. However, most non-spouse beneficiaries are still subject to required distribution timelines.

Some beneficiaries leave assets untouched out of uncertainty. Others liquidate quickly without considering tax consequences or long-term opportunity cost.

An inherited IRA is not a temporary holding account. It is still an investment account with real growth potential and risk.

Without coordination, beneficiaries often discover the tax impact after the fact.

Many of the core inherited IRA rules still apply, but spouses are granted additional choices that can significantly affect taxes, cash flow, and retirement planning.

Why Spousal Status Changes Everything

Inherited IRA rules change significantly depending on your relationship to the original account owner. Spouses are typically given more flexibility while non-spouse beneficiaries often face stricter timelines and fewer options. These differences can shape when distributions begin, how they are taxed, and how inherited assets fit into a broader retirement plan.

Ability to Treat the IRA as Your Own

Spouses may be able to assume ownership of the inherited IRA. Treating the account as your own can allow you to delay Required Minimum Distributions until you reach your own RMD age, rather than being subject to inherited IRA timelines.

This option may be attractive for spouses who do not need immediate income and want to maximize tax-deferred growth. However, it can also eliminate certain flexibilities, such as penalty-free access before age 59½.

Remaining a Beneficiary Instead of Taking Ownership

Remaining a beneficiary rather than treating the IRA as your own may allow a spouse to access funds before age 59½ without early withdrawal penalties. This can be an important consideration for spouses who need near-term income or are navigating career transitions.

The tradeoff is that Required Minimum Distributions may begin sooner, depending on age and the original account owner’s status.

The “Wait and Switch” Planning Strategy

In some situations, surviving spouses may benefit from remaining a beneficiary temporarily before later assuming ownership of the account. This approach can preserve flexibility, delay required distributions, or provide penalty‑free access to funds before age 59½.

Because these elections are time‑sensitive and interconnected, this strategy should be evaluated carefully with professional guidance.

How RMD Calculations Work for Surviving Spouses

Spouses who remain beneficiaries may be able to calculate RMDs using their own life expectancy. This can result in smaller required distributions than other beneficiary types, but the rules are nuanced and highly dependent on timing and elections made early on.

Choosing the wrong path can accelerate taxes or reduce flexibility later. These decisions are often difficult to reverse once distributions begin.

Why Consolidating an Inherited IRA Can Reduce Required Income

In many cases, surviving spouses benefit from consolidating inherited IRAs into their own accounts. This is because different IRS life expectancy tables apply depending on whether an account is treated as inherited or owned.

Using a more favorable life expectancy table can reduce required distributions and taxable income over time in certain situations.

Rolling Assets Into Another Retirement Account

Spouses may be able to roll inherited IRA assets into their own IRA or another qualified retirement plan. This approach can simplify account management and align inherited assets with existing investment and retirement strategies.

However, rolling assets over can change distribution requirements and eliminate certain inherited IRA benefits. This decision should be evaluated carefully within the context of your full financial picture.

Tax Considerations for Spousal Beneficiaries

Whether distributions are taxable depends on whether the inherited account is traditional or Roth. Traditional inherited IRA distributions are generally taxed as ordinary income, while Roth distributions may be tax-free if requirements are met.

Even tax-free distributions can still be subject to timing rules, which means planning is still required to avoid penalties.

Common Planning Challenges for Spouses

Because spouses have multiple options, many delay making a decision or default to what seems simplest. Unfortunately, early missteps can create long-term tax consequences or restrict future planning opportunities.

Early coordination is critical. The best option often depends on age, income needs, tax planning considerations, and long-term retirement goals.

Examples: Planning Opportunity for Surviving Spouse

Example 1: Suppose Horace passes away at age 75, leaving an IRA to his surviving spouse Louise, age 70. Horace owned a $1,000,000 IRA and Louise has her own $500,000 IRA.

As the survivor, Louise has two main choices:

1. She can maintain a separate inherited

2. She can take Horace’s IRA as her own, folding it into her own IRA to form a single $1,500,000 IRA.

If she keeps the inherited IRA, she would be required to take RMDs immediately. The RMD is required because Horace was already RMD-age (currently 73, phasing to 75 if born 1960 and later).

Further, Louise’s inherited IRA RMD would be calculated using the Single Life Table which requires larger annual distributions than the Uniform Life Table that individuals use to calculate their RMD.

If Louise took the IRA as her own, she would have a single $1,500,000 IRA. As she is only age 70, she would not need to take any RMDs in the ensuing years until she turned 73. 

Example 2: Now, let's switch the ages. Say Horace was 70 when he passed away, and Louise was 75. Louise still has the same two choices, but the results change.

If Louise is 75, she is required to take a taxable required distribution from her account. If she rolls Horace’s IRA into her own, the balance increases from $500,000 to $1,500,000, dramatically increasing the required distribution she must take.

If Louise keeps the inherited IRA separately, the RMD is based on whether the decedent was taking RMDs. Horace was not; he was only 70. In fact, Louise won't be required to take an RMD from the inherited IRA until the year Horace would have turned 73.

In this way, Louise can minimize her required RMD for the next two years as only her personal $500,000 IRA will have a required distribution.

As a spouse beneficiary, Louise can “take on” the inherited IRA as her own at any time. This doesn't need to be done in a certain time period from the date of death. It is viable (and sound planning) for Louise to keep an Inherited IRA for a period of time to reduce the required distribution, and then consolidate once both accounts have RMDs.

Why the SECURE Act Matters for Non‑Spouse Beneficiaries

Beginning in 2020, the SECURE Act significantly changed how inherited IRAs work for most non-spouse beneficiaries. In many cases, the ability to stretch distributions over a lifetime was eliminated, replaced with a 10-year distribution requirement.

Understanding how this rule works — and how to plan within it — is critical to managing taxes and avoiding penalties.

Understanding the 10‑Year Rule

Most non-spouse beneficiaries must fully distribute the inherited IRA’s balance within 10 years after the original owner’s death. The 10-year clock begins the year following the account owner’s death, and the entire balance must be withdrawn by the end of the tenth year.

What matters most is not the deadline itself, but how you use the years leading up to it. Without a strategy, beneficiaries may face large tax bills in later years.

Determining Whether Annual RMDs Apply

One of the most confusing aspects of inherited IRAs for non-spouse beneficiaries is whether annual Required Minimum Distributions are required during the 10-year period.

If the original account owner had already started taking RMDs, beneficiaries may be required to continue annual distributions. If not, distributions may be flexible until the final year. Misunderstanding this rule can lead to missed distributions or unnecessary withdrawals.

Traditional vs. Roth Inherited IRAs for Non‑Spouses

For traditional inherited IRAs, distributions are taxed as ordinary income. When withdrawals stack on top of existing earnings, they can push beneficiaries into higher tax brackets or trigger other unintended tax consequences.

Roth inherited IRAs may allow for tax-free distributions, but most non-spouse beneficiaries are still subject to strict distribution timelines. Even when taxes are minimized, planning is required to meet deadlines.

Managing the Tax Impact of Distributions

Inherited IRA distributions often interact with other income sources, including wages, bonuses, or retirement income. Without coordination, beneficiaries may unintentionally increase marginal tax rates or Medicare premiums.

Strategic planning focuses on managing taxable income over time rather than reacting to deadlines.

Strategic Withdrawal Approaches Over 10 Years

A thoughtful withdrawal strategy considers how assets are invested, expected income changes, and long-term goals.

Strategic options may include:

• Spreading withdrawals evenly over the 10-year period to help smooth taxable income and avoid a large tax burden in the final year.
• Taking smaller or minimum required distributions in the early years when a beneficiary expects income to decline in the future, then increasing withdrawals later to fill lower tax brackets.
• Avoiding strategies that defer most withdrawals until year ten unless future income is expected to be substantially lower.

These approaches are not rigid formulas but planning frameworks that help manage tax exposure over time. 

Additional Planning Considerations for Non-Spouse Beneficiaries

Several practical considerations often shape strategy decisions:

• Expected income changes: Beneficiaries who expect to retire or reduce income within the 10-year window may benefit from delaying larger distributions until lower-tax years.

• Tax withholding strategy: Withholding taxes directly from inherited IRA distributions can help offset estimated tax payments, since IRA withholding is treated similarly to payroll withholding by the IRS.
• Asset allocation: Because inherited IRA funds may be used within a relatively short time horizon, investment risk may need to be adjusted differently than for long-term retirement accounts.

Common Challenges for Non‑Spouse Beneficiaries

Many beneficiaries delay decisions due to uncertainty, while others liquidate inherited assets too quickly without considering tax implications or opportunity cost.

Inherited IRAs are still investment accounts with growth potential and risk. Treating them as temporary holding accounts can undermine long-term outcomes.

Examples: Planning Opportunity for Adult Child Beneficiaries

Let's say Deborah passes away at age 90 and leaves her $1,000,000 IRA equally to her two children: William (age 60) and Rebecca (age 55). Two things will be true in this case:

1. William and Rebecca will each need to take an RMD to take each year from the IRA because Deborah was RMD-age at her time of death.
2. As Deborah’s adult children, each of them will have 10 years to distribute the full balance of the IRA. The only exception would be if one of them were medically disabled or chronically ill.

The RMDs will be relatively small compared to the full account balance. Simply relying on the minimum distribution alone would likely leave a large account balance to be withdrawn in year ten, creating a sort of “tax bomb” where a much higher marginal tax rate applies to assets as they are cleared from the account in year ten.

Depending on each of their life situations, they may take different strategies to optimize the tax rate of their Inherited IRA withdrawals.

Example 1: William is Retiring Soon. Suppose William knows he will be retiring in three years, at which point his taxable income will decrease significantly. He has the option to start his Social Security benefit, but would prefer to delay until age 67 or even 70. After speaking with his advisor, William creates a plan for his Inherited IRA withdrawals:

1. Take only the RMD for the next 3 tax years.

2. Once he retires, take out large distributions from the Inherited IRA at his much lower tax bracket.
3. To the extent possible, “replace” his Social Security benefit with his Inherited IRA distributions, perhaps allowing him to delay claiming benefits until age 70.

Example 2: Rebecca is Still Working. On the other hand, Rebecca expects to continue working during most, if not all, of the ten-year period where she would need to take Inherited IRA withdrawals.

Rebecca’s income is also variable depending on her equity compensation activity. Her husband Tony (also 55) has a steady job and also plans to keep working closer to age 65. They view the next decade as the critical peak earning years to support their ambitious retirement plans.

After speaking with their advisor, Rebecca and Tony establish a strategy: 

1. Aim to take out equal distributions from the account each year (1/10th of the account in Year 1, 1/9^th of the account in Year 2, and so on). This will far exceed the RMD amount.
2. Given the variance in Rebecca’s income, run an annual tax scenario at the fall meeting to confirm how much space they have remaining in the 24% marginal federal bracket. Use that to determine how much to boost or reduce the annual Inherited IRA distribution.

Even with a family tree, the “best practice” may vary dramatically from household to household. A customized approach can help beneficiaries evaluate opportunities to manage tax exposure more thoughtfully.

What matters most is not the deadline itself, but how you use the years leading up to it.

This rule creates several strategic paths:

• Taking distributions evenly to smooth taxable income
• Front-loading withdrawals during lower-income years
• Delaying distributions when future income is expected to decline

The wrong approach can create a sharp tax spike in later years. The right approach can help manage marginal tax rates, preserve flexibility, and align withdrawals with real-life changes like retirement or career transitions.

At Plancorp, we take a holistic approach that touches every area of your financial life and coordinates the moving parts into one integrated plan, designed to support your goals. Here’s how we do it:

Comprehensive Financial Planning

We begin by understanding your full financial picture. That includes income, existing investments, tax considerations, family needs, and long-term objectives.

Inherited IRA decisions are then aligned with your broader plan—not made in isolation.

Tax Strategy & Optimization

Taxes are often the biggest long-term risk with inherited IRAs. We help clients evaluate:

• Multi-year tax scenarios in coordination with their CPA
• Strategic withdrawal timing
• How distributions interact with bonuses, equity compensation, or retirement withdrawals
• Opportunities to smooth income and avoid unnecessary tax spikes

This forward-looking approach is something a basic calculator simply cannot provide.  

Investment Management

Inherited IRA assets still need to be invested thoughtfully. We provide guidance on:

•  Portfolio allocation based on your goals and time horizon

• Coordinating inherited assets with existing investments
• Managing risk as distribution deadlines approach

The goal is to balance growth, income needs, and tax efficiency.

Estate Planning Coordination

Inherited IRA decisions often impact your own estate plan.

We coordinate with your attorney or connect you with trusted professionals to ensure inherited assets are aligned with beneficiary designations, trusts, and legacy goals.

Ongoing Support & Monitoring

Rules change. Life changes. So should your strategy. Our team provides:

•  Annual RMD calculations and reminders

• Ongoing strategy adjustments
• Support as laws, income, or family circumstances evolve

Plancorp clients aren’t left managing this alone.

Ready to Make a Confident Plan for Your Inherited IRA?

Whether you’ve just inherited an IRA or are approaching a distribution deadline, the earlier you plan, the more options you have.