When to take distributions from an Inherited IRA if no RMD is required
My question is regarding someone that inherits an IRA in 2023 under the 10 year rule, and is not required to take an RMD. Is it better to let the funds grow tax deferred and wait until the end of the 10 year period and take everything out then, or is it better to take some out each year to reduce the big tax hit at the end of the 10th year? Anyone know of a good tool or calculator to determine this?
Permalink Submitted by PaulC on Tue, 2024-03-26 18:27
I don’t know of such a calculator for just that purpose. The analysis is somewhat complicated since it potentially requires looking at ten years of tax projections to determine marginal rates for each year using projections or assumptions of income, projecting future tax rates, the amount “space” in each bracket, and the impact of income beyond the tax return, meaning the impact such things as ACA health insurance subsidies or Medicare premiums with IRMAA. The future use of the funds once they’re distributed would also be a factor since there’s an opportunity cost in leaving the money in an IRA. Depending on whether some of those factors are applicable it wouldn’t have to be as complicated as I’m potentially making it. I would generally think that “smoothing” the tax hit somewhat would be the most likely best scenario to lower overall taxes paid.