Leave the Kids the Roth, Spend the IRA Yourself: The Inheritance Order Most Families Get Backward.
Most retirees instinctively protect the account their heirs will dread inheriting most, while spending down the one that could have compounded tax-free for a decade. The tax code quietly rewards a different sequence, and very few families follow it.
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
The order in which retirees draw down their accounts often reverses the most efficient plan for the next generation. A common instinct is to leave the traditional IRA untouched because the Roth has already grown tax-free and feels like the “bonus” account. The tax code rewards the opposite behavior. Spending the traditional IRA during retirement and leaving the Roth to heirs tends to leave more after-tax wealth on both sides of the transfer.
Two federal rule changes shape this calculation. The SECURE Act ended the stretch IRA for most non-spouse beneficiaries, requiring inherited traditional IRAs to be fully distributed within 10 years. Those distributions are taxed as ordinary income to the heir, often during their highest-earning years. Inherited Roth IRAs are also subject to the 10-year rule, but withdrawals come out tax-free, and the balance can compound tax-free for the entire decade before being emptied.
Balances in these accounts are not evenly distributed. According to Fidelity’s Q3 2025 Retirement Analysis of 24.8 million participants, average IRA balances by generation stand at $257,002 for Baby Boomers, $103,952 for Gen X, $25,109 for Millennials, and $6,672 for Gen Z. The Boomer figure is the one that matters most for inheritance planning, because Boomers are the generation currently deciding which account to draw from first.
Why the Traditional IRA Is the “Ugly” Inheritance
Clark Howard framed the contrast bluntly on his podcast, calling a Roth IRA “a great asset to inherit” and a traditional IRA “an ugly asset to inherit.” A child who inherits a $500,000 traditional IRA at age 55 has to withdraw the full balance by age 65, right when their own earnings peak. Layered on top of a six-figure salary, those distributions can be taxed at 32% or higher at the federal level, before state taxes are added.
The same $500,000 in a Roth arrives with no tax bill. The heir can let it compound tax-free for the full decade before emptying the account. Any growth during those 10 years also escapes taxation, a structural advantage that traditional accounts cannot replicate under current law.
The Conversion Window Most Retirees Miss
The strategy extends beyond simply choosing which account to spend first. Retirees with large traditional balances who do not expect to need the money can convert portions to a Roth over a series of years, paying tax now at their own rate rather than passing a larger bill to heirs at potentially higher rates. Howard’s guidance on the same episode was direct: “People who end up with money in retirement accounts they never need, if they can afford to pay the tax on the conversion, will want to move the money over the years into a Roth from a regular.”
The timing of these conversions matters. The window between retirement and the start of required minimum distributions at age 73 is often the lowest-income stretch of a retiree’s adult life. Converting during those years keeps the tax bill in lower brackets. Once RMDs begin, the retiree is already required to withdraw taxable amounts from the traditional IRA each year, which can push them into higher tax brackets, making additional conversions less attractive.
The 10-year Treasury yield sits at 4.61% as of late July, near the top of its 12-month range of 3.97% to 4.71%. Higher expected returns on the fixed-income portion of a portfolio mean more of the account’s future value comes from growth rather than principal, and growth inside a Roth is permanently sheltered from tax.
The Household Constraint
Execution is complicated by cash flow. The personal savings rate has slid from 6.2% in the first quarter of 2024 to 3.9% in the first quarter of 2026, and the average credit card APR sits at 21%. Families carrying high-interest debt often cannot afford the upfront tax bill from a Roth conversion, which is why the order of questions matters even for those who never convert. Spending the traditional first and letting the Roth ride captures most of the inheritance benefit without requiring any additional cash outlay.
The order matters most for households in the middle of the balance distribution, where the traditional IRA is large enough to trigger meaningful tax liability for heirs but not so large that lifetime taxes are unavoidable. The Boomer generation’s average IRA balance of $257,002 sits squarely in that range. Spending down the traditional account during retirement and leaving the Roth to compound for the next generation is the sequence the tax code rewards. It is also the sequence most families reverse by default.
Contact [email protected] for any questions or corrections.
David Beren has been a Flywheel Publishing contributor since 2022. Writing for 24/7 Wall St. since 2023, David loves to write about topics of all shapes and sizes. As a technology expert, David focuses heavily on consumer electronics brands, automobiles, and general technology. He has previously written for LifeWire, formerly About.com. As a part-time freelance writer, David’s “day job” has been working on and leading social media for multiple Fortune 100 brands. David loves the flexibility of this field and its ability to reach customers exactly where they like to spend their time. Additionally, David previously published his own blog, TmoNews.com, which reached 3 million readers in its first year. In addition to freelance and social media work, David loves to spend time with his family and children and relive the glory days of video game consoles by playing any retro game console he can get his hands on.
