Receiving an inheritance is generally good news for your finances: It can help you cover various expenses and increase your savings. But if it’s a traditional individual retirement account (IRA), there are tax rules that are important to understand so that you can strategize your withdrawals.

Here’s what you should know about inherited IRAs and how they can impact your tax bill.

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The hidden tax trap explained

The IRS typically requires non-spouse beneficiaries to withdraw all of the funds from the IRA within 10 years. Those beneficiaries may also have to take out required minimum distributions (RMDs). RMDs are withdrawals the IRS requires from certain tax-deferred retirement accounts starting at age 73 and for some beneficiaries, depending on factors like whether the original owner had already begun taking them.

Withdrawals from traditional IRAs are treated as taxable income, which means that withdrawing from them could push you into a higher tax bracket. You also need to pay taxes on these withdrawals.

It can be less than ideal for people who are working full-time and at the height of their careers to have to withdraw from IRAs, since higher earnings often means a higher tax bracket.

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Who is most at risk of getting hit

An adult in their 50s who inherited an older parent’s IRA is likely still working and may have to contend with elevated tax brackets on any traditional IRA withdrawals. A surviving spouse often has more flexibility than other beneficiaries. They can roll the assets into their own IRA or delay withdrawals depending on their situation.

These withdrawals can have unintended consequences on other income streams. These withdrawals will increase your modified adjusted gross income, which can trigger higher Medicare Part B and D premiums. If you are withdrawing from this account while collecting Social Security, the elevated modified adjusted gross income can impact how much of your Social Security is taxed, since up to 85% of your benefits can be taxed.

How to soften the tax hit

If you inherit a Roth IRA, withdrawals are generally tax-free. You likely still have to withdraw the funds within 10 years.

But if you inherit a traditional IRA, you need to strategize how you will withdraw the money. For instance, you can gradually withdraw funds to spread the tax impact out over 10 years instead of having a big tax bill in the last year of eligibility. You can also accelerate withdrawals during years when you have a lower income or more deductions.

There are several options for lowering your overall tax bill. It may be helpful to meet with a tax professional to discuss what makes the most sense.