If you own a Traditional IRA and plan to leave it to your kids, the IRS is quietly waiting in the wings. Convert it to a Roth first and your children get roughly a decade of tax-free compounding on an inherited Roth IRA, then walk away with a $0 federal tax bill. That is the buried edge inside the SECURE Act‘s 10-year rule that most inheritance planning glosses over.
The Buried Rule Nobody Explains at Account Opening
Under the SECURE Act, when a non-spouse inherits an IRA, they must empty the account within 10 years of your death. Traditional IRA heirs owe ordinary income tax on every dollar pulled out. Roth IRA heirs owe nothing federal on qualified distributions. The kicker: an inherited Roth carries no annual required minimum distribution during those 10 years. Your kids can leave every dollar invested, let it compound tax-free the entire window, and take one lump sum in year 10.
Compare that to an inherited Traditional IRA. If you died after your required beginning date (age 73 under SECURE 2.0), your heirs owe annual RMDs and must still zero the account by year 10, each withdrawal taxed at their marginal rate. Given core PCE inflation running near the 2% Fed target, that annual tax drag quietly erases real return year after year.
Where the Rule Actually Lives
The 10-year rule sits in Section 401(a)(9) of the Internal Revenue Code, rewritten by the SECURE Act of 2019 and clarified in the IRS final regulations issued July 18, 2024, which took effect for RMDs beginning in 2025. IRS Publication 590-B covers the distribution mechanics for both Traditional and Roth inherited accounts. This is the law as written, and it has been sitting there since December 2019.
Who Gets the 10-Year Clock (and Who Doesn’t)
The 10-year rule applies to “non-eligible designated beneficiaries,” which is IRS-speak for adult children, grandchildren, nieces, nephews, and most non-spouse heirs. Five groups are exempt and get the older stretch treatment: a surviving spouse, minor children of the account owner (until they hit the age of majority, then their 10-year clock starts), disabled beneficiaries, chronically ill beneficiaries, and any heir within 10 years of the decedent’s age. If your kid is a healthy 40-year-old, they are locked into the 10-year window.
How to Actually Pull This Off
- Convert Traditional IRA dollars to a Roth in years when your taxable income is unusually low: post-retirement, pre-Social Security, or a gap year between jobs.
- Pay the conversion tax from a taxable account, not from the IRA itself. Otherwise you shrink the base your heirs inherit.
- Name beneficiaries directly on the account. A will does not override an IRA beneficiary form.
- Start the Roth’s 5-year clock early. Open and fund a Roth (even $100) years before you plan any big conversion.
- Tell your heirs the deadline. A missed year-10 distribution triggers a 25% penalty on the amount that should have come out.
With the 10-year Treasury yielding 4.65% as of August 7, 2026 and the Fed funds upper bound at 3.75%, even a conservatively invested inherited Roth can meaningfully grow across that decade with zero tax friction.
The Catch Nobody Mentions
Roth conversions are irreversible. The Tax Cuts and Jobs Act killed recharacterization back in 2018, so once you convert, you owe the tax at your current bracket. If your children are in materially lower brackets than you, converting could cost the family more than simply letting them inherit the Traditional and pay their own tax over 10 years. Run the math both ways.
Two more traps. First, the Roth account’s own 5-year rule must be satisfied at your death for the earnings to pass tax-free to your heirs. If you open a brand-new Roth via conversion and die three years later, earnings withdrawn before that account hits its fifth birthday are taxable to your heirs. Contributions and converted principal still come out tax-free. Second, state income tax on the conversion varies widely: some states pile on, some (like Florida and Texas) do not touch it. Check your state before you pull the trigger.
The trade is simple. You take the tax hit now so your kids get 10 years of untaxed compounding and a $0 bill at the finish line. On a Traditional IRA, the IRS takes that ending balance. On a Roth, your kids do.
Contact [email protected] for any questions or corrections.
Top Gaining Stocks
Top Losing Stocks