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Inheriting a $600,000 traditional IRA can leave you with far less money if you withdraw it all at once. Distributions from the account are generally taxed as ordinary income, and non-spouse beneficiaries face a strict deadline for emptying the account, with annual withdrawals potentially required before then. But one strategy could help you keep more of your inheritance.
Why a Lump Sum Withdrawal Can Create a Large Tax Bill
Most non-spouse beneficiaries who inherit a traditional IRA from someone who died in 2020 or later generally must empty the account by December 31 of the 10th calendar year following the owner’s death. 1
Annual required minimum distributions (RMDs) may also apply when the original owner died on or after their RMD start date. These distributions set the minimum that must come out annually, but they do not necessarily dictate how you withdraw the rest of the account.
You can generally take more than the required amount, giving you some control over when you recognize the taxable income before the 10-year deadline. A financial advisor can help you run the tax math on a few different withdrawal scenarios before you decide how much to take and when to withdraw.
How a $600,000 Withdrawal Could Trigger Almost $200,000 in Taxes
To see how a lump-sum withdrawal could trigger a six-figure tax bill, let’s assume that you inherit a $600,000 traditional IRA and withdraw the entire balance in one year. As a single filer, you earn $100,000 annually, which would bring your taxable income to $700,000 with the distribution.
The withdrawal would bump you from the 22% federal income tax bracket into the 37% bracket. Federal income taxes use marginal rates, so the inherited IRA distribution would be taxed across several brackets rather than entirely at the highest rate. Based on the IRS tax brackets for single filers in 2026, here’s how your $700,000 in taxable income would be taxed: 2
| Federal Tax Rate | Taxable Income in Bracket | Calculation | Federal Income Tax |
|---|---|---|---|
| 10% | $12,400 | $12,400 × 10% | $1,240 |
| 12% | $38,000 | ($50,400 − $12,400) × 12% | $4,560 |
| 22% | $55,300 | ($105,700 − $50,400) × 22% | $12,166 |
| 24% | $96,075 | ($201,775 − $105,700) × 24% | $23,058 |
| 32% | $54,450 | ($256,225 − $201,775) × 32% | $17,424 |
| 35% | $384,375 | ($640,600 − $256,225) × 35% | $134,531 |
| 37% | $59,400 | ($700,000 − $640,600) × 37% | $21,978 |
| Total | $700,000 | $214,957 |
Without the inherited IRA distribution, the federal income tax on $100,000 of taxable income would be about $16,712. Subtracting that amount from the roughly $214,957 tax on $700,000 leaves about $198,245 in additional federal income tax attributable to the $600,000 withdrawal.
Strategies That Could Help Reduce Taxes on an Inherited IRA
Spreading distributions across several tax years could keep more of your inherited IRA in lower tax brackets. As an example, instead of taking the full $600,000 at once, you could withdraw $60,000 annually for 10 years. The comparison below applies 2026 federal tax brackets and keeps your taxable income at $100,000 annually.
| Withdrawal Strategy | Calculation | Estimated Federal Tax on Inherited IRA |
|---|---|---|
| $600,000 lump sum | Tax on $700,000 − tax on $100,000 | $198,245 |
| $60,000 annually | ($5,700 × 22%) + ($54,300 × 24%) = $14,286 annually | $142,860 over 10 years |
| Potential tax savings | $198,245 − $142,860 | $55,385 |
Under these assumptions, spreading the distributions could reduce federal income taxes by about $55,385. Actual savings would depend on future tax brackets, your income and any inherited IRA RMDs that apply.
Timing larger distributions for periods when your taxable income is lower could also reduce the tax impact. Retirement, reduced work hours or a drop in earnings could leave more room in lower tax brackets. You could then withdraw more from the inherited IRA while potentially paying a lower marginal rate.
A financial advisor may be able to help you compare withdrawal options and how each can affect your taxes.
Article Sources
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- “Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs) | Internal Revenue Service.” Home, https://www.irs.gov/publications/p590b. Accessed Sept. 14, 2026.
- “IRS Releases Tax Inflation Adjustments for Tax Year 2026, Including Amendments from the One, Big, Beautiful Bill | Internal Revenue Service.” Home, https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill. Accessed Sept. 14, 2026.