Leave Your Kids a $1 Million Traditional IRA and They Pay Tax on Every Withdrawal for 10 Years. Convert It First and They Don’t

A traditional IRA left to adult children comes with a deadline. Under rules the SECURE Act wrote into the tax code, most heirs who aren’t spouses must empty an inherited account within a decade. Every dollar they take out of a traditional IRA counts as taxable income, often during their highest-earning years. A Roth conversion moves that tax bill to the parent. Whether the trade pays off comes down to one question: whose tax rate is lower?

Heirs Face a 10-Year Clock

When an IRA owner dies in a tax year beginning after December 31, 2019, all distributions must be made by the end of the 10th year after death, except for certain eligible designated beneficiaries. Publication 590-B gives an example: if the owner died in 2025, the beneficiary must fully distribute the IRA by December 31, 2035.

Whether heirs must also take money out every year depends on when the owner died. If the owner died before the required beginning date and the 10-year rule applies, no distribution is required for any year before the 10th year. If the owner died on or after that date, a designated beneficiary bases required minimum distributions on the longer of their own single life expectancy or the owner’s life expectancy, and the account still has to be emptied within the 10-year window. Under 26 U.S.C. § 408(d)(1), traditional IRA payouts are included in gross income by the payee.

Spouses and Eligible Beneficiaries Follow Separate Rules

Publication 590-B defines an eligible designated beneficiary as the owner’s surviving spouse, minor child, a disabled individual, a chronically ill individual, or any other individual who is not more than 10 years younger than the IRA owner. These heirs can generally take life expectancy payments instead. A surviving spouse who is the only beneficiary can elect to treat the inherited IRA as their own. For a minor child, the 10-year rule starts once the child reaches the age of majority.

Inherited Roth Withdrawals Arrive Tax-Free

A Roth IRA still has a payout deadline. After a Roth owner dies, certain distribution rules that apply to traditional IRAs also apply to Roth IRAs. The difference is the tax. Under 26 U.S.C. § 408A(d)(1), qualified distributions shall not be includible in gross income, and § 408A(d)(2)(A)(ii) counts payments made to a beneficiary on or after the death of the individual as qualified. There is one catch. Section 408A(d)(2)(B) excludes payouts made within the 5-taxable year period that starts with the owner’s first Roth contribution. While the owner is alive, § 408A(c)(4) means no lifetime required distributions apply to a Roth.

Converting creates a tax bill right away. Treasury Regulation 26 CFR 1.408A-4 allows an amount in a traditional IRA to be converted to a Roth IRA. The 2024 edition of Publication 17 says the converted amount is included in gross income and reported on Form 8606, and that you can’t convert amounts that must be distributed as required distributions that year. If you made nondeductible contributions, § 408(d)(2) treats all individual retirement plans as 1 contract when figuring the taxable share.

A Hypothetical $1 Million IRA Shows the Rate Gap

Hypothetical household: A retired couple in their 70s files jointly. They have $1,000,000 in a traditional IRA and $110,000 of other taxable income. Their two married adult children each report $420,000 of joint taxable income. To keep the math simple, the example ignores investment growth. For tax year 2026, the joint rates are 22% over $100,800, 24% over $211,400, 32% over $403,550 and 35% over $512,450.

Path A: Children Inherit the Traditional IRA

1. Each child inherits $500,000.
2. Equal withdrawals: $500,000 ÷ 10 years = $50,000 per year.
3. Taxable income: $420,000 + $50,000 = $470,000, which stays inside the 32% bracket.
4. Annual tax per child: $50,000 × 32% = $16,000.
5. Total: $16,000 × 10 years × 2 children = $320,000.

Path B: Parents Convert First

1. The parents convert $100,000 a year for 10 years.
2. Taxable income: $110,000 + $100,000 = $210,000, which is below the $211,400 start of the 24% bracket, so all of it is taxed at 22%.
3. Annual tax: $100,000 × 22% = $22,000.
4. Total: $22,000 × 10 = $220,000.
5. Gap: $320,000 minus $220,000 = $100,000 less federal tax on the same $1 million.

This result assumes the parents pay the $22,000 each year from savings outside the IRA. If the tax comes out of the IRA itself, less money ends up in the Roth.

Medicare Surcharges Cut Into the Savings

Add the 2026 joint standard deduction of $32,200 back to the couple’s taxable income and their income comes to at least $242,200 in each conversion year. That is above the 2026 joint threshold of $218,000, where Medicare’s income-related surcharges (IRMAA) start. The first tier adds $81.20 a month per person to Part B, bringing the premium to $284.10, plus a Part D adjustment of $14.50. Higher income lands in higher tiers.

Who Conversions Don’t Suit

• Heirs in the same or a lower bracket: converting means paying the tax early at an equal or higher rate.
• Charitable heirs: charities pay no income tax on traditional IRA money they inherit.
• No outside cash: paying the tax from the IRA reduces the Roth.
• Spouse or eligible designated beneficiary heirs: life expectancy payouts weaken the 10-year argument.
• Planned moves: converting in a high-tax state before moving to a lower-tax one can cost more at the state level.

Run These Numbers Before Year-End

Converted amounts are generally included in income for the year that you converted them, so each December closes that year’s chance to use a bracket. Compare your marginal rate with your children’s expected rates, count the Medicare and state tax costs, and check whether any heir is an eligible designated beneficiary (we sized up the quiet low-bracket years that make conversions cheapest in a free Roth guide here: The Roth Window). When the parent’s rate is clearly lower, converting can lower the family’s total tax. When the rates are close, it often doesn’t.

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