@bgoodreau01
With all the discussion of the minutiae of kiddie tax, we may have lost sight of the underlying question, which is whether your grandson should liquidate his entire $30,000 inherited IRA this year. (It might be more than $30,000 by the end of the year.) There's a risk we haven't mentioned that I think your grandson should consider.
With $30,000 or more of unearned income, being under 24 and a student, and with relatively little earned income, if your grandson does not include kiddie tax on his tax return it might raise questions at the IRS. They could audit him as late as 2029, asking him to show why kiddie tax does not apply. If he concludes that his relatively low earned income is more than half of his total support for the year, he better have accurate, detailed, convincing records to show how he calculated his total support. If he is audited and the IRS doesn't accept his explanation, he will end up having to pay the kiddie tax plus penalties and interest. He has to weigh the possible tax savings this year against the risk of an audit. Has he calculated how much he would actually save in taxes?
