Inherited IRA Withdrawal Strategy: How Much Should I Take Out Each Year While I’m Still Working?

You inherited a large traditional IRA from a parent, you’re in the heaviest earning years of your career, and you have ten years to empty the account. Every dollar you pull out lands on top of a salary that’s already taxed near the top. So the instinct is to take as little as possible and deal with it later — and that instinct, left unchecked, is what produces the worst possible outcome. The right inherited IRA withdrawal strategy isn’t “take the minimum” and it isn’t “split it into ten equal pieces.” It’s to move money out in the amounts and the years that keep it out of your highest bracket and clear of the income lines that cost extra. Here’s how to size it.

How much should I withdraw from my inherited IRA each year?

Enough to use up the room in your lower tax brackets each year, and no more than keeps you under the next bracket or income cliff — with a floor set by any required minimum you owe.

That’s the whole game in one sentence, but it has two moving parts. There’s a floor (the minimum you’re forced to take, if any) and a ceiling (the point each year where the next dollar starts costing too much). Your annual number lives between them. The mistake is treating the floor as the answer and letting the rest pile up for a single oversized year at the end.

Do I even have a required minimum each year?

Maybe. It depends on whether your parent had already started their own required minimum distributions before they died.

If your parent died on or after their RMD age, you have a mandatory withdrawal in each of years one through nine, and that’s your floor — you can take more, but not less. If your parent died before that age, there is no annual floor at all; you only have to empty the account by the end of year ten. Either way the ten-year deadline is the same. We lay out exactly how to tell which case you’re in, and how the annual minimum works, in the inherited IRA 10-year rule guide. Settle that first, because it sets the floor every other decision sits on top of.

What’s the actual goal — empty the account, or manage my brackets?

Manage your brackets. Emptying the account is just the constraint; the goal is to get the money out at the lowest total tax across the whole ten years, not in any single year.

Think of your tax brackets as buckets that refill every January. Each year you have some room between your current taxable income and the top of your bracket. A good withdrawal strategy pours inherited-IRA money into that room — filling the cheap brackets — and stops before it spills into the next one. Do that for ten years and you’ve converted a forced liquidation into a deliberate, low-rate draw-down. The mechanics of filling a bracket to its ceiling without tipping over are the same ones we walk through for sizing Roth conversions year by year — the inherited IRA just removes the choice about whether to take the income, not how to size it.

Why isn’t splitting it into ten equal withdrawals the answer?

Because your income isn’t equal across the ten years, so equal withdrawals don’t produce equal tax.

A flat one-tenth-a-year split ignores the most valuable thing you have: the low-income years coming somewhere in that decade. If you take the same amount in a year you’re earning $450,000 as in a year you’ve gone part-time, you’re paying top-bracket rates on dollars that could have come out far cheaper. Equal tenths is a fine fallback if your income is dead flat for a decade — almost nobody’s is. The better approach front-loads or back-loads the heavy withdrawals to match the years your other income is lowest.

When should I take more, not less?

In any year your income dips — and you should plan the ten years around those windows on purpose.

A sabbatical, a gap between jobs, the early years of a business that isn’t profitable yet, or the slide from full-time work into part-time consulting are all opportunities to pull a much bigger slice at a lower rate. One common pattern: a high earner four or five years from a part-time transition takes only the required minimum during the peak-salary years, then accelerates the withdrawals hard once the big paychecks stop. The account still empties on time, but a chunk of it comes out in the 12% or 22% world instead of the 37% one. If you see a low-income year coming, that’s where the money should come out.

Which income lines should I stop short of?

The ones above your bracket that cost extra even when you’re not in the top bracket — chiefly the Medicare premium surcharge, the ACA subsidy cliff, and the net investment income tax.

Every dollar of inherited-IRA withdrawal is ordinary income, so it raises the figure those tests look at. Three to watch:

• Medicare (IRMAA): if you’re 63 or older, a big withdrawal can raise your Medicare Part B and D premiums two years later, because the surcharge is set off your income from two years back. The thresholds and the two-year lookback are in our IRMAA guide.
• The ACA subsidy cliff: if you buy your health insurance on the marketplace, one oversized withdrawal can erase your premium tax credit entirely. The math is in the ACA subsidy cliff guide.
• The net investment income tax: a 3.8% surtax that kicks in once your modified AGI crosses a set threshold ($200,000 single, $250,000 married filing jointly) under IRC § 1411. The withdrawal itself isn’t hit by it — retirement-plan distributions are carved out of net investment income — but it raises your AGI and can drag your other investment income into the tax.

You won’t always be able to stay under every line — a $2 million account doesn’t fit under a low bracket no matter how you slice it. But knowing where the lines are turns “how much can I take” into a number instead of a guess.

Should I empty it faster if I’m about to move to a high-tax state?

Often, yes. If you’re heading from a no-tax state to a high-tax one, pulling more out before you establish residency can save the state tax entirely.

A withdrawal is generally taxed by the state you live in when you take it, and federal law (4 U.S.C. § 114) bars a state you’ve left from reaching back to tax your retirement distributions as a former resident. So a beneficiary in Florida or Texas who’s planning a move to California has a window: accelerate withdrawals while you’re still a no-tax resident, because once you’re a California resident the rest of the draw-down picks up state tax on top of federal. The residency timing rules — and the traps in proving when you actually changed states — are the same ones we cover for timing a Roth conversion around a state move. The direction reverses if you’re moving the other way: if a high-tax state is in your past and a no-tax state is your future, wait.

What if I’m charitable and over 70½?

Then a qualified charitable distribution lets you satisfy part of the draw-down without the money ever hitting your taxable income.

Once you’re 70½, you can send money straight from an IRA — including an inherited one — to a qualified charity, and that amount comes out tax-free rather than as ordinary income to you. The rule is IRC § 408(d)(8), and it’s the beneficiary’s own age that has to clear 70½, not the parent’s. For a beneficiary who gives anyway, routing some of the required withdrawal through a QCD is one of the few ways to empty part of the account at a zero rate. It won’t drain a large balance on its own — the annual exclusion is capped (indexed; $112,000 for 2026) — but it’s a clean tool to layer in. It’s the same lever we walk through in when a Roth conversion isn’t worth it, where giving from an IRA can beat converting at all.

What does getting the timing wrong actually cost?

Enough to matter. The classic miss is a beneficiary who inherits a seven-figure account from a parent who was well past their RMD age, hears “ten years,” and decides to let it ride untouched until year ten.

Two things go wrong at once. First, because the parent had started RMDs, skipping the annual distributions wasn’t even allowed — that’s a missed-RMD penalty on each skipped year (25%, reduced to 10% if corrected promptly, under IRC § 4974), which we cover in the Form 5329 guide. Second, the entire balance plus a decade of growth now has to come out in a single year, stacked on a still-high income and very likely in the top bracket with the surtaxes riding along. The same money, spread deliberately across ten years, could have come out at a dramatically lower average rate. The cost of “I’ll deal with it later” is the gap between those two numbers.

What should I do first?

Pin down three things, in order: whether you owe an annual minimum (which sets your floor), where your low-income years fall in the next decade (which is where the big withdrawals belong), and which income line you need to stay under each year (your ceiling). Then you have a year-by-year plan instead of a looming deadline.

If you’d rather have someone build that ten-year schedule against your actual numbers — your brackets, the IRMAA and ACA lines, a state move, your charitable giving — that’s the core of our inherited IRA tax planning. Book a remote consult with our office; sizing the withdrawals deliberately is worth far more than the few hours it takes to map them.

Disclaimer: This article is for educational purposes only and does not constitute investment, tax, or financial advice. Tax law is highly fact-specific and subject to change. Always consult a qualified professional about your specific situation.