Here's how to avoid getting 'hammered' on inherited individual retirement account taxes, experts say

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Inherited individual retirement accounts can be a financial boost for heirs, but the windfall can trigger tax issues, experts say. Withdrawals from pretax inherited IRAs incur regular income taxes. Since 2020, certain heirs can no longer "stretch" retirement account distributions over their lifetime to reduce yearly taxes. Now, certain heirs, including most adult children, must deplete inherited accounts within 10 years, known as the "10-year rule." The rule applies to heirs who aren't a spouse, minor child, disabled or chronically ill. It may also apply to certain trusts. Ideally, you should smooth out your yearly tax liability "so you don't get hammered by the end of the 10th year," said individual retirement account expert and certified public accountant Ed Slott. More from Personal Finance: IRS waives mandatory withdrawals from certain inherited individual retirement accounts Your Roth 401(k) after-tax matching contribution could trigger unexpected taxes Here's what to know before withdrawing funds from inherited IRAs The IRS in 2022 proposed mandatory yearly withdrawals from inherited IRAs if the original account owner had already started distributions. However, the IRS has waived the penalty for missed required minimum distributions amid confusion — and extended that relief for 2024 in April. Slott said there's widespread confusion about the rules, but the relief only condenses the 10-year window for taxable IRA withdrawals. "They're just pushing off the inevitable," said JoAnn May, a Berwyn, Illinois-based certified financial planner at Forest Asset Management. She is also a certified public accountant. While only about 20% of May's clients have inherited IRAs, she expects more heirs to face the tax-planning issue as baby boomers age.