Most people think about their IRA as money for their own retirement. They're right — but they're only half right. Whatever remains in an IRA at death passes to whoever is named as beneficiary. For most people, that's a spouse first, then children or other heirs. The question of what type of IRA they inherit — traditional or Roth — determines how much of that money actually stays in the family. The difference is not subtle. Under the SECURE Act's 10-year distribution rule, a child who inherits a large traditional IRA in their peak earning years can see a significant portion of the inheritance d
When a non-spouse beneficiary — an adult child, a sibling, a friend — inherits an IRA, the SECURE Act requires them to fully distribute the account within 10 years of the owner's death. There are limited exceptions for certain categories of beneficiaries, including surviving spouses, minor children, and disabled individuals. For most adult heirs, the 10-year clock applies. The 10-year rule is the same whether the inherited account is traditional or Roth. Both types must be emptied within 10 years. The difference is what happens when those distributions are taken. Distributions from an inherited traditional IRA are ordinary income. They're added to the heir's income in the year taken, taxed at whatever marginal rate the heir faces, and potentially push the heir into a higher bracket. Distributions from an inherited Roth IRA are generally tax-free, provided the original account owner had the Roth IRA open for at least five years before death. The heir pays no income tax on the distributions, regardless of how large the account grew.
The tax cost of inheriting a traditional IRA depends heavily on the heir's income level and the size of the account. The following scenarios use a 45-year-old heir earning $150,000 annually (22% marginal bracket) who inherits an account and distributes it evenly over 10 years. Account Annual Heir's 10-Year Tax **After-Tax Size Distribution Effective Rate Cost Inheritance (Estimate)** $300,000 ~$30,000/yr ~24% (income ~$72,000 ~$228,000 Traditional stacking) $300,000 Roth ~$30,000/yr 0% on $0 ~$300,000 distributions $1,000,000 ~$100,000/yr ~32% (income ~$320,000 ~$680,000 Traditional stacking) $1,000,000 ~$100,000/yr 0% on $0 ~$1,000,000 Roth distributions These figures are illustrative. Actual tax liability depends on the heir's total income, state taxes, account growth, and distribution timing. They do not account for account growth during the distribution period. Source: General IRS tax rate structure; not a tax projection for any specific individual. The gap between a traditional and Roth inheritance grows with the size of the account and the heir's income level. For a high-earning heir inheriting a large traditional IRA, the 10-year distribution requirement can represent a tax bill of several hundred thousand dollars on money the account owner spent decades saving.
The conversion math for legacy purposes centers on a comparison between two tax rates: the rate the account owner pays to convert now versus the rate the heir would pay to distribute later. If a parent converts $200,000 in their early 60s at a 22% marginal rate, they pay $44,000 in current-year federal income tax. That $200,000 then grows tax-free in the Roth and passes to heirs without additional income tax. If the same $200,000 remains in a traditional IRA and eventually passes to a child in their 50s earning $200,000 per year, those distributions could easily be taxed at 32% or higher — a federal tax cost of $64,000 or more on the same dollars. The parent paid $44,000 to eliminate a $64,000+ bill for the child. The family keeps the difference. This is what tax arbitrage across generations looks like — not as an abstract concept, but as actual numbers.
The choice between traditional and Roth as an inheritance tool isn't binary — and it doesn't require converting everything. Even partial conversions during the retirement income valley can meaningfully reduce the tax burden on heirs. Converting the portion of an IRA most likely to push heirs into higher brackets on inheritance — not necessarily the entire account — can be a targeted and effective strategy. A traditional IRA left to a charity generates no income tax (charities are tax-exempt). A Roth IRA left to an heir in a high bracket generates no income tax. A traditional IRA left to a high-earning heir generates significant income tax. Knowing which outcome applies to your beneficiaries shapes the conversion decision.
The 10-year rule doesn't require annual distributions from an|Beginning Date. An heir can let the entire Roth balance compound|A Roth IRA left to a surviving spouse is treated as the spouse's own|Roth IRA. The spouse faces no RMDs during their lifetime and can let
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