Like it or not, inheriting a tax-deferred IRA calls for action, due to laws that require the beneficiary to withdraw funds (and pay taxes on the withdrawals). And it's not that simple, since the law treats beneficiaries differently.

The one commonality is that a minimum amount must be withdrawn from the IRA on a timely basis and in almost all situations will be taxable as income. That leads to a question from a reader of this column. "Seth" believes the required minimum distributions (RMDs) on an inherited IRA will push him into a higher tax bracket. He wants to know if there is a way to avoid that. Basically, he is asking whether there is a way to fulfill RMD requirements while at the same time save taxes.

This is an excellent question that calls for tax expertise, not just to save taxes, but also to prevent penalties for not taking withdrawals on a timely and accurate basis. It is imperative that Seth consult with his tax adviser or CPA before deciding on a course of action, as every person's financial and tax situations are unique.

There are resources available for you to read on background, but be careful, since some online resources are out of date. This is due to the changes that came about as a result of the passage of the SECURE Act in 2019 and SECURE 2.0 in 2022, and the interpretations that followed.

To prepare, let me share a few ideas.

First, confirm the rules that apply to you as a beneficiary. Don't assume anything. Beneficiary rules differ based on who you are in relation to the deceased. Surviving spouses have the most flexibility. Minor children have different rules, as do beneficiaries who inherit from an IRA owner who was already taking RMDs on his own IRA before passing away (typically someone over age 73).

Second, see if there is flexibility in the timing of withdrawals. Namely, certain beneficiaries have more time than others to empty out an inherited IRA. "Eligible Designated Beneficiaries," or EDBs, may be able to "stretch" withdrawals over their own lifetimes, potentially well beyond the 10-year withdrawal period that applies to non-EDBs.

Third, if there is flexibility, that can open doors to manage the timing of withdrawals. For example, if you inherit a traditional IRA from someone who died under age 73 (technically before their "required beginning date"), he was not already taking RMDs of his own. That beneficiary must empty out the inherited IRA by Dec. 31 of the 10th year following the death of the IRA owner. There is no requirement to take out any withdrawals before then, giving you some flexibility to manage withdrawals year by year with the goal of avoiding creeping into a higher tax bracket.

On the other hand, if the IRA owner had reached his RBD (usually after age 73), the beneficiary cannot wait until the 10th year to empty out the account. Instead, he would have to start taking RMDs in years one through nine as well.

Fourth, consider what you will do with the withdrawn funds. Will you spend the money? Will you keep it and invest it? Someone creative might think of rolling over those withdrawals into another IRA of their own, but that won't work under the rules (with an exception for surviving spouses). However, you could use some of the proceeds to do a fresh contribution to your own IRA if you haven't already done that for 2026, assuming you have earned income for the year. The contribution limit for 2026 is $7,500 ($8,600 if you are 50 or older).

One more thought: If you, the beneficiary, are over 70 1/2, you can donate the RMD to charity and avoid taxes altogether by following QCD rules (qualified charitable distributions). (If you would like more information on QCDs let me know.) IRS Publication 590-B can be a useful resource (tinyurl.com/47h9utkb).

Again, because of the complicated rules and the importance of an individual's financial situation, Seth will want to consult with his tax adviser or CPA to plot the best path forward, one that involves the least amount of increase in taxes for him.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

One of the benefits of being age 50 or older is a "catch-up." Created by the Economic Growth and Tax Relief Reconciliation Act of 2001 (tinyurl.com/p6c736e6), catch-ups help future retirees with enhanced opportunities to save on a tax-advantaged basis.

This year (2026), those age 50 and older who are contributing to 401(k), 403(b) and 457 plans can set aside $8,000 more than those under 50 for a total allowable contribution of $32,500. Those under 50 are limited to $24,500.

If you turn 60, 61, 62, or 63 this year, your catch-up is $11,250 instead of $8,000, for a total allowable contribution of $35,750 (provided your company's plan allows for this type of "super" contribution).

When you add the amount that your employer can contribute to the plan on your behalf, the overall limit for 2026, counting contributions by the employer and the employee, is $72,000 for those under age 50. For those 50 or older, the top limit is $80,000, except for those age 60 to 63, which is even higher at $83,250.

If you consider how many people take advantage of catch-ups, you can probably imagine it's not many. That's a problem, since we're talking about a potentially vulnerable group of "under-savers" who are getting close to retirement without sufficient retirement nest eggs.

Vanguard's "How America Saves 2025" report, which uses data from more than 1,400 qualified plans and nearly 5 million participants, offers some insight (tinyurl.com/486xmx4c). About half (51%) of those with incomes over $150,000 took advantage of catch-ups (if offered) in 2024, but only 16% of eligible participants of any income level did so.

Forty-nine percent of participants with incomes of more than $150,000 contributed the maximum allowed, and so did 41% of those with an account balance of more than $250,000.

Those participants who took advantage "tended to have higher incomes, were older, had longer tenures with their current employer, and had accumulated substantially higher account balances," stated the Vanguard report.

During 2024, 14% of participants of any age saved the then-maximum amount of $23,000 (or $30,500 for those 50 and older).

A recently released report by the Public Retirement Research Lab (PRRL), a collaborative effort of the Employee Benefit Research Institute and the National Association of Government Defined Contribution Administrators, offered a similar scenario.

Utilizing data from the 2023 PRRL Database 2, which included more than 900,000 participants representing 208 different plans, the percentage of participants eligible to make catch-up contributions was 36%, and of those, 5% chose to participate (tinyurl.com/mvycdtu6). Of those who did make catch-up contributions, 24% earned more than $150,000.

The reality is that for some with lower incomes, catch-ups are simply unaffordable. For others with higher incomes and insufficient savings, catch-ups can be lifesavers. Certainly, "super savers" will benefit (described by the Principal Financial Group as those who save 15% or more of their income for retirement, or at least 90% of the maximum allowed -- tinyurl.com/p3vz3ax5).

Before leaving this subject, there is another type of catch-up that is geared to employees who make $150,000 or more. Starting this year, for those who exceed FICA-taxable earnings of $150,000 in 2025, the catch-up will be recorded in after-tax dollars instead of pre-tax. That means that the catch-up will count as part of your W-2 income. To find out more about this 2026 change, read Fidelity's "Understanding new Roth 401(k) catch-up rules" (tinyurl.com/4dffwkwd).

For those with incomes below $150,000, the catch-up will be accounted for in pre-tax dollars, meaning those funds will not count as W-2 income, giving them the advantage of saving money on taxes. (Note that some company plans may offer after-tax catch-ups.)

Whether or not to do a catch-up will turn on your personal financial situation.

In the end, you'll want to engage your tax adviser or investment adviser before making a final decision. The most important exercise will be making sure that you are on track to meet your retirement goals.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

About 1 out of 5 people eligible for the earned income tax credit (EITC) missed out on getting a "check in the mail" from the U.S. Treasury between tax years 2014 and 2022. Why? They did not claim the credit (tinyurl.com/36tjp3h7). As a longtime proponent of financial literacy education, that bothers me.

The EITC "helps low- to moderate-income workers and families get a tax break." And, importantly, it is a "refundable credit." (See the EITC webpage on IRS.gov -- tinyurl.com/4haknnxp).

Now, understanding the concept of a "refundable credit" takes some creativity: You can get a tax refund even if you don't owe a tax. Hard to understand, but the bottom line is this: If you qualify for the EITC, even if you don't need to file a tax return, you will want to.

The tax return in essence is your claim to a "check" from the government. That "check" arrives in your bank account in the form of a tax refund.

According to the IRS, if a taxpayer's tax bill "is less than the amount of a refundable credit, they can get the difference back in their refund" (tinyurl.com/bdebsrky). It's the reason that taxpayers who are not required to file a tax return might still want to do so, if they are eligible to claim refundable tax credits. As for nonrefundable tax credits, "once a taxpayer's liability is zero, the taxpayer won't get any leftover amount back as a refund."

Getting back to the EITC, a link on the EITC webpage will take you to the EITC Assistant, where you can answer questions to see if you are eligible.

There are a number of other tax-refundable (and non-refundable) credits available, and some have adjustments this year due to Public Law 119-21, also known as the One Big Beautiful Bill Act (tinyurl.com/2s48s73m).

Refundable tax credits (other than the EITC) include:

-- Premium Tax Credit, which helps "lower the amount eligible individuals and families pay each month for coverage under their qualified health plan purchased through a Marketplace." The IRS webpage "Premium Tax Credit (PTC) Overview" has more details (tinyurl.com/532m9spy).

-- The Fuel Tax Credit relates to fuel used for specific work-related activities -- operating a business or running a farm. The IRS notes on its Fuel Tax Credit webpage that the credit "is not available to most taxpayers" (tinyurl.com/3dyum2cv).

Some tax credits are partially refundable. One example: the Adoption Tax Credit (available to taxpayers who finalized an adoption in 2025 or started the process before 2025). See the IRS release "Tax credits for individuals" for more details (tinyurl.com/57bzkfy7).

Then there are nonrefundable tax credits, which can reduce taxes owed. Examples:

-- Child Tax Credit/Additional Child Tax Credit, which helps families with qualifying children get a tax break. The maximum amount for 2025 is $2,200 per qualifying child. See the IRS webpage "Child Tax Credit" (tinyurl.com/2s43ry99).

Note that the Additional Child Tax Credit is a refundable portion of the Child Tax Credit, with a possible refund of up to $1,700 per qualifying child.

-- Saver's Credit (also known as the Retirement Savings Contributions Credit), which allows you, if eligible, to take a tax credit for making eligible contributions to your IRA or employer-sponsored retirement plan. The maximum credit is $1,000 ($2,000 if married and filing jointly). See the Saver's Credit IRS webpage (tinyurl.com/4rzd7xj5).

An important tool related to the tax credits is the IRS Interactive Tax Assistant (tinyurl.com/cyuxwj39). It addresses many of the credits and will help you determine if you are eligible.

The importance of financial literacy education, and specifically tax literacy education, cannot be ignored.

As Erin Collins explained in the National Taxpayer Advocate's 2025 Annual Report to Congress, "a family that is eligible but does not claim the EITC may miss out on thousands of dollars in refunds and end up paying more in taxes because they misunderstand the rules, meaning the families who need these funds the most are likely missing this tax benefit" (tinyurl.com/3d3rtpwk).

If you think you might be eligible for the EITC, or any other tax credit, then use the IRS resources to find out. You could end with more money in your pocket.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION