I indicated in a recent column that if you inherited an IRA after the SECURE Act went into effect at the beginning of 2020, and if the original owner of the IRA had reached their required beginning date (RBD), and if that person was not your spouse, you are likely subject to the regulations related to non-eligible designated beneficiaries (NEDB) and are required to start taking RMDs in 2025.

Even though you were not required to take RMDs in 2021 through 2024, you are required to compute the amount of your RMD based on the amount you would have taken the year after you became a beneficiary.

For example, assume you inherited an IRA in 2020. If you had to take an RMD in 2021, you would have based that RMD going back to the amount you would have taken in 2021. So you would have used the single life table to determine your life expectancy in 2021, the year after you inherited your IRA. If you were 50 in 2021, your life expectancy in 2021 would have been 35.3. For each year after 2021, you would subtract one from that factor for each year after 2021. Thus, in 2025 you would subtract four from 35.3 to determine your life expectancy. If the value of the inherited IRA was $100,000, and the value of your IRA at the end of 2024 is $110,000, you would divide $110,000 by 31.3 to determine your RMD in 2025.

Because you are subject to the 10-year rule, at the end of 2031 you will have to withdraw the total amount in the IRA at that time. You likely feel that you were fortunate that you did not have to take out RMDs for several years, but if your IRA is substantial, you should consider taking out more each year than you have to. That is because if you only take out the minimum each year, you will find that you have a large tax bill in 2031. It is possible that your marginal tax bracket in 2031 will be much higher than it is in 2024 , for example. So, you may want to consider taking an RMD in 2024 to avoid a large tax bill in 2031. If you are faced with a large income tax bill in 2031, you may also trigger a significant increase in your Part B premium in 2033 (the premium is based on your adjusted gross income two years prior).

You may even want to consider making withdrawals from your own IRA prior to when you are required to. For example, if you have a large IRA, making withdrawals prior to reaching the age when you are required to initiate RMDs may be beneficial to you if you are in a lower tax bracket now than you will be in later. If you are in a low tax bracket now, you may want to consider converting some of your traditional IRA into a Roth IRA. You have that option with your own IRA. You don’t have that option with an inherited IRA.

Bottom line: If you inherited a large IRA, or if you have a large non-inherited IRA, and you are in a low tax bracket now, you should consider spreading the withdrawal out over several years rather than face a large tax bill later.

(Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.)