NOT TAX ADVICE: This article is for informational and educational purposes only. Tax laws are complex, fact-specific, and can change over time. Before making any decisions about an inherited IRA, distributions, Medicare premiums, Social Security taxation, or a move to Texas, discuss your situation with a qualified tax professional.
Inheriting an IRA can feel a bit like finding a treasure chest on your front porch, only to realize it’s locked with a 10-digit code and a ticking clock. If you are one of the many retirees or pre-retirees planning a move to the Texas Hill Country, the stakes can feel even higher. You’re likely looking forward to the slower pace of Wimberley: mornings at the Blanco River and afternoons at local wineries: but a misstep with your inherited retirement account could create a "Texas-sized" tax bill you didn't see coming.
With the SECURE Act and SECURE 2.0 rewriting the rulebook, what worked for your parents probably won’t work for you. And as we move into 2026, the IRS appears to be tightening its grip on distribution requirements.
Here are seven common mistakes people make with inherited IRAs, along with strategies to discuss before you pack the moving truck for Wimberley.
1. The "Wait and See" 10-Year Mistake
One of the biggest myths floating around is that the "10-year rule" means you don't have to touch the money for a decade. While it’s true that most non-spouse beneficiaries must empty the account by December 31st of the 10th year following the original owner’s death, there is a massive "if."
If the person you inherited the account from had already started taking their Required Minimum Distributions (RMDs), you cannot wait until year 10. You are likely required to take annual RMDs in years one through nine. If you wait until the final year to cash out, you could be pushed into the highest federal tax bracket, effectively handing a huge chunk of your inheritance back to Uncle Sam.
Strategies to Discuss with Your Tax Professional: Determine whether the original owner had reached their "Required Beginning Date" for RMDs. If they had, one approach to explore may be a 10-year distribution plan that spreads the tax impact across multiple years rather than a single, painful lump sum in year 10.
2. Missing the 2026 RMD Enforcement Window
For a few years, the IRS was a little lenient with the new 10-year rule because the regulations were, frankly, confusing. They waived penalties for missed RMDs on inherited accounts for 2020 through 2024. But those "grace years" are over.
As we head into 2026, the IRS is expected to be in full enforcement mode. Missing an RMD can result in a 25% excise tax on the amount you were supposed to take. That is a steep price to pay for a simple calendar oversight.
Strategies to Discuss with Your Tax Professional: Don’t assume the "waiver" still applies. Review your RMD status for 2025 and 2026. If you’ve already missed a distribution, consider working with a qualified professional to correct it quickly; in some situations, the penalty may be reduced to 10% if corrected within a specific window.
3. Ignoring the "IRMAA" Trap
Many of our clients moving to Wimberley are also navigating Medicare. This is where an inherited IRA can bite you in a way you didn't expect. Large distributions from an inherited IRA increase your Modified Adjusted Gross Income (MAGI).
If your MAGI crosses certain thresholds, you might get hit with IRMAA (Income Related Monthly Adjustment Amount), which significantly increases your Medicare Part B and Part D premiums. We’ve discussed this in detail in our post on why IRMAA will change the way you plan your move to Wimberley.
Strategies to Discuss with Your Tax Professional: Coordinate IRA withdrawal timing with your Medicare planning. In some cases, taking a slightly larger distribution in one year may be worth discussing if it helps avoid crossing a threshold that could trigger higher premiums for years to come. Understanding MAGI management secrets can be helpful here.
4. The Spouse "Treat as Own" Miss
If you inherited an IRA from your spouse, you have more flexibility than a child or a trust would. You can often roll the inherited funds into your own IRA, a process known as "treating it as your own." This allows you to delay RMDs until you reach your own RMD age.
However, some people rush into this without considering their own age. If you are under 59 ½ and need the money now, keeping it as an "Inherited IRA" (rather than rolling it into your own) allows you to take distributions without the 10% early withdrawal penalty.
Strategies to Discuss with Your Tax Professional: Before you consolidate accounts, review your cash flow needs. If you're heading into your "Go-Go" years and want to buy that luxury Hill Country home, the structure of how you inherit the account may matter more than many people expect.
5. Forgetting the Roth 10-Year Clock
People love inherited Roth IRAs because the distributions are generally tax-free. But don’t let that tax-free status lull you into a false sense of security. Even an inherited Roth IRA for a non-spouse beneficiary typically falls under the 10-year rule.
While you might not have to take annual distributions in years one through nine, the account must be empty by the end of year 10. If you forget and leave it until year 11, you could face penalties.
Strategies to Discuss with Your Tax Professional: Even though distributions are generally tax-free, track the 10-year deadline carefully. One strategy to consider is letting the money grow tax-free as long as possible while still making sure you have a plan to exit the account before the clock runs out.
6. The "No State Tax" Mirage
Texas is famous for having no state income tax, which is a huge win for retirees with large IRA distributions. However, many people forget that Texas makes up for that revenue through property taxes.
If you're moving from a state with high income tax but low property tax, your inherited IRA distributions will be cheaper to take in Texas, but your "cost of living" might still be higher than you think. We broke down this tradeoff in our guide on no income tax vs. high property tax in Wimberley.
Strategies to Discuss with Your Tax Professional: Consider how any federal tax savings from taking distributions in Texas might fit into your broader retirement budget alongside higher property taxes in Hays County. It’s all about balance, and the right approach depends on your full financial picture.
7. Not Coordinating with Your Social Security
When you start pulling money from an inherited IRA, it can impact how much of your Social Security is taxable. This is especially relevant if you are watching the annual Social Security COLA increases. More income from your IRA means more of your Social Security check could end up being taxed at the federal level.
Strategies to Discuss with Your Tax Professional: Think through the timing of inherited IRA distributions to see whether there may be ways to reduce the "tax torpedo" effect on your Social Security benefits. In some cases, that could mean taking more money out before you start Social Security or spreading it out in a way that may help keep your total provisional income below certain limits.
How to Review Your Inherited IRA Strategy Before Your Move
The transition to retirement in a place like Wimberley should be about choosing which winery to visit or which trail to hike, not stressing over IRS circulars. If you’ve inherited an account recently, here is a checklist to review with a qualified tax professional:
- Identify the Status: Was the original owner taking RMDs? Are you an "eligible designated beneficiary"?
- Run a 10-Year Projection: Don't guess. Model the potential tax impact of taking money out slowly versus all at once.
- Check for "Texas Synergy": Look at how no state income tax may affect your withdrawal approach.
- Update Your Own Beneficiaries: Don't make the same mistake twice. Ensure your Wimberley estate plan reflects the current SECURE Act rules.
Planning for an inherited IRA is just one piece of the puzzle when you're relocating to the Texas Hill Country. Whether you’re looking at luxury homes near Blue Hole or a quiet acreage off Fischer Store Road, your financial plan should be as unique as the town of Wimberley itself. Tax laws are complex, and professional guidance can help you evaluate which options make sense for your situation.
Schedule a call with a fiduciary financial advisor today: https://calendly.com/portafoliocapital/15min
Portafolio Capital Management dba Mau Sanchez Capital is a Registered Investment Adviser. This content is for informational purposes only and does not constitute investment advice or a solicitation to buy or sell any security. Advisory services are provided only pursuant to a written advisory agreement. Call us at (512) 593-8380 or visit https://portafoliocapital.com/ to learn more.
Leave a Reply