New Rules for Inherited IRAs Could Leave Heirs With a Hefty Tax Bill

Thanks to recent changes in the law on inherited IRAs, your tax bill from any inheritance could be larger than you expect.

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New rules for inherited IRAs could leave some heirs with a hefty tax bill. In the first quarter of 2023, Americans held more than $12 trillion in IRAs. If your parents saved diligently throughout their lives, there’s a good chance you’ll inherit some of that money.

But before you quit your day job — or buy a Maserati — make sure you factor in the amount of your inheritance you’ll have to share with Uncle Sam. Thanks to recent changes in the law, along with a new interpretation of those changes from the IRS, your tax bill could be larger than you expect. Beneficiaries of traditional IRAs have always had to pay taxes on inherited accounts, but before 2020, you could minimize the tax bill by extending withdrawals over your life expectancy. If you inherited an IRA before 2020, you can still take advantage of that strategy to stretch out withdrawals — and taxes — over your life expectancy.

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Sandra Block
Senior Editor, Kiplinger's Personal Finance

Block joined Kiplinger in June 2012 from USA Today, where she was a reporter and personal finance columnist for more than 15 years. Prior to that, she worked for the Akron Beacon-Journal and Dow Jones Newswires. In 1993, she was a Knight-Bagehot fellow in economics and business journalism at the Columbia University Graduate School of Journalism. She has a BA in communications from Bethany College in Bethany, W.Va.