inherited IRA

Q&A: How can I withdraw money from an IRA without paying taxes?

July 21, 2026 By Liz Weston Leave a Comment

Dear Liz: I’ve been retired for 17 years due to illness. My wife has passed away. I know nothing about finances. She did it all. I have an IRA with my wife. I want to withdraw from it but not be penalized on taxes. I know there is a way, but I don’t know the proper way.

Answer: Please find a good tax professional to help you. Retirement accounts have a lot of rules and some stiff penalties if you get things wrong. Even people who know a lot about finances can get confused and make costly mistakes. Since you’re starting from zero, you’ll definitely want expert advice to guide you.

Let’s start with the fact that withdrawals from traditional retirement accounts are typically taxable. That’s only fair, since people usually get a tax break for putting money into the account and the balances grow tax-deferred for many years. At some point, Uncle Sam wants his due. Withdrawals from IRAs usually must start by a certain age (currently 73) and are added to your taxable income. You can face penalties if you don’t make these withdrawals on time. You’ll also face penalties if you try to tap retirement accounts too early (typically before age 59½).

Roth IRAs are the exception to these rules. You don’t get a tax break on contributions to a Roth, but withdrawals in retirement are typically tax free and there’s no requirement to make withdrawals by a certain age. Also, you can withdraw the money you contributed directly to a Roth IRA at any time without facing taxes or penalties.

You mentioned that you have this account “with” your late wife, but you can’t own an IRA with another person. If you’ve inherited your wife’s IRA, the rules about when you have to start taking withdrawals can vary. Again, you’ll want to consult a tax pro who can give you individualized guidance.

Q&A: How the kiddie tax can derail your inheritance tax strategy

July 6, 2026 By Liz Weston Leave a Comment

Dear Liz: I’m about 50 and have two early elementary school children. I make really good money and with the combination of all taxes the last dollar I make is taxed at about 50%.

I stand to inherit about $5 million from my parents. The problem is that about $3 million of that is in retirement funds. If those funds go to me, over the next 10 years I will have to take them as income and will lose half to taxes. I’m considering asking my mother to leave $1 million to each grandchild so that they can take it as income at a much lower tax rate, possibly saving $300,000 per kid. The problem is I am not sure I want my kids to have access to a million dollars the second they turn 18.

Is there any way I can avoid either giving them a ton of money when my parents die or me paying a ton in income taxes? Both kids already have 529s that will be filled in three to five years, so that is already out.

Answer: Not only is giving a million bucks to a teenager a bad idea, but the tax savings you’re hoping for may not materialize thanks to the kiddie tax.

Basically, unearned income above $2,700 a year is taxed at the parents’ rate, not the child’s, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. Unearned income includes interest, dividends, capital gains and taxable distributions from retirement accounts.

The kiddie tax can apply to offspring up to the age of 23 depending on their circumstances.

Minors who inherit a retirement account from a parent are required to take small distributions based on their own life expectancies until they turn 21. After that, they typically have to drain the accounts within 10 years. The 10-year clock starts immediately, however, when minors inherit a retirement account from anyone who is not a parent.

Another issue is that your parents’ retirement accounts don’t get the valuable step-up in tax basis at death that their taxable accounts would get, says Jennifer Sawday, an estate planning attorney in Long Beach. The step-up insures that no capital gains taxes are owed on the appreciation that occurs during the original owners’ lifetime. If your parents want to maximize the inheritance they leave, it would make sense to preserve those taxable assets as much as possible and spend down the retirement accounts, Sawday says. Another option is converting some of their retirement money to Roth IRAs, especially if their tax bracket is lower than yours and they’re willing to pay the taxes on the conversions. You’d still have to empty the Roths within 10 years of their deaths, but the withdrawals would be tax free.

Properly drafted trusts are another option to consider if your parents want to skip you and get money directly to their grandkids, Sawday says. Trusts allow distributions at specified ages (such as 25, 30 or even later). But trusts have complex rules and can have high tax rates. Your parents need to consult an experienced estate planning attorney as well as a tax pro before taking any of these actions.

Q&A: Inherited IRA could increase tax bill and Medicare premiums

June 16, 2025 By Liz Weston

Dear Liz: If someone inherits my retirement account, is there any way they can avoid having their Medicare premiums increased for one year?

Answer: A large-enough retirement account could affect their Medicare premiums for up to 10 years, not just one.

Normally inheritances aren’t taxable, but retirement accounts are the exception. Withdrawals from inherited retirement accounts are usually taxable as income, and most non-spouse inheritors must drain a retirement account within 10 years. Withdrawals from inherited Roth accounts aren’t taxable, but the accounts still must be drained by the inheritor within a decade.

If the inheritor is on Medicare, taxable withdrawals could boost income enough to increase their Medicare premiums, thanks to the income-related monthly adjustment amounts (IRMAA). This surcharge starts once modified adjusted gross income exceeds certain amounts, which in 2025 is $106,000 for single filers and $212,000 for married couples filing jointly.

Anyone who inherits a retirement plan should get advice from a tax pro, but that’s particularly important when withdrawals might affect tax brackets and Medicare premiums. The pro can help determine how quickly or slowly the money should be withdrawn to maximize how much the inheritor gets to keep.

Q&A: The lowdown on inherited IRAs

May 26, 2025 By Liz Weston

Dear Liz: I inherited my mother’s Roth IRA when she died in 2015 and have been taking yearly required minimum distributions based on my age. My spouse is my primary beneficiary on this inherited Roth IRA. What happens if I pass away before she does? Can she just roll it over into her existing Roth IRA, as is generally permitted for spousal IRA inheritance? Or are there additional limits imposed because it becomes a “doubly inherited” Roth IRA?

Answer: The SECURE Act largely eliminated the so-called stretch IRA that allowed non-spouse beneficiaries to take distributions over their lifetimes. IRAs inherited on or after Jan. 1, 2020, must typically be drained within 10 years.

That likely would be the case for your wife. Special rules allow a spouse to treat an inherited IRA as their own, but only when they inherit from the original IRA owner, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.

There are a few exceptions. Your wife may be able to spread the distributions over her lifetime if she is disabled or chronically ill, for example.

If that’s not the case, she’s back to draining the account within 10 years. Many inherited IRAs require annual distributions. Since this is a Roth IRA, however, the original owner would not have been required to start distributions. Therefore, the spouse of the inherited Roth IRA beneficiary does not have a requirement to distribute annually over the 10-year period but may wait until the end of the 10-year period to do the full distribution, Luscombe says.

Q&A: Old inherited IRA is safe from “drain it in 10 years” requirement

July 8, 2024 By Liz Weston

Dear Liz: You have written that non-spouse beneficiaries are now required to drain their inherited IRAs within 10 years. Is this requirement retroactive?

I inherited an IRA from my mother in 2015. I have been taking out the minimum required each year. If I must drain the account within 10 years, will the increase in yearly income affect my Social Security benefits?

Answer: The 10-year requirement applies only to accounts inherited from people who died after Dec. 31, 2019.

IRA distributions don’t affect Social Security benefits, but could affect Medicare premiums if the withdrawal is large enough. Taxable income above certain limits triggers a Medicare surcharge known as an income-related monthly adjustment amount, or IRMAA.

Q&A: A sticky inheritance scenario

May 6, 2024 By Liz Weston

Dear Liz: I have an adult daughter by a previous marriage who has no savings or retirement funds. I want to change my living trust to ensure that my daughter only receives a monthly amount similar to my required minimum distribution from my IRA, plus half of our paid-off house after my wife and I pass away. Do I need a trust attorney?

Answer: Restricting access to an inheritance might be necessary, but few adults would be happy about being put on an allowance. Unhappy heirs may be more likely to challenge an estate plan, so you should get expert advice if you want your wishes to prevail.

Even if your daughter is amenable, you still need an estate planning attorney’s help to craft the trust that doles out the money. Understand that inherited IRAs typically must be drained within 10 years. (The exceptions are for surviving spouses, minor children, the disabled or chronically ill or survivors who are not more than 10 years younger than the account owner.) If the beneficiary is a trust, the distributions don’t have to be paid out to your daughter, but any amount retained by the trust will typically be taxed at a higher rate. Plus, you’ll have to find someone to manage the trust, notes Burton Mitchell, a Los Angeles estate planning attorney. Who you select to be the trustee is critically important, as they will have to deal with your daughter for the rest of her life, Mitchell says.

Also, you may need to reconsider how you own your house if you want to ensure half goes to your daughter. Typically couples own property jointly, so that the survivor inherits automatically. If you want to bequeath your half of the property to someone other than your spouse, you may need to change the ownership structure to tenants in common. You’ll need to think this through carefully, since such a change would have legal, tax and practical implications that you’ll want an attorney to thoroughly explain. For example, if your spouse dies before you, she could leave her house to someone other than you, Mitchell notes. The house could be sold and you might need to find somewhere else to live. Conversely, if you die first, your wife could be forced to move if your daughter insisted on selling the house.

In other words, achieving what you want may be a lot more complicated and have more repercussions than you currently imagine. Talking with an experienced estate planning attorney can help you better understand your options.