Leave Your Kids a Roth Instead of a Traditional IRA and They Get 10 Extra Years of Tax-Free Compounding plus a $0 Tax Bill at the End

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, a non-spouse who inherits an IRA must empty the account within 10 years of the original owner’s death. Traditional IRA heirs owe ordinary income tax on every dollar they pull out. Roth IRA heirs owe nothing at the federal level 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 completely tax-free across the entire window, and take one lump sum in year 10.

The contrast with an inherited Traditional IRA is significant. 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, with each withdrawal taxed at their marginal rate. That recurring tax drag compounds the damage year after year, particularly in a rate environment where the 10-year Treasury has climbed to roughly 5.08%.

Where the Rule Actually Lives

The 10-year rule sits in Section 401(a)(9) of the Internal Revenue Code. The SECURE Act of 2019 rewrote that section, and the IRS issued final regulations (T.D. 10001) on July 19, 2024, clarifying how the rule operates. Those regulations took effect for RMDs beginning in 2025, after the IRS waived penalties for missed distributions from 2021 through 2024. IRS Publication 590-B covers the distribution mechanics for both Traditional and Roth inherited accounts. The law has been on the books since December 2019, but 2025 is the first year full enforcement applied.

Who Gets the 10-Year Clock (and Who Doesn’t)

The 10-year rule applies to “non-eligible designated beneficiaries,” which is IRS terminology for adult children, grandchildren, nieces, nephews, and most non-spouse heirs. Five groups are exempt and retain the older stretch treatment: a surviving spouse, minor children of the account owner (until they reach age 21, at which point their own 10-year clock begins), disabled beneficiaries, chronically ill beneficiaries, and any heir within 10 years of the decedent’s age. The IRS final regulations set age 21 as the universal threshold for minor-child status, replacing the prior patchwork of state-law definitions. A healthy 40-year-old adult child is locked into the 10-year window, with no exceptions.

How the One Big Beautiful Bill Changes the Math

The conversion calculus shifted in July 2025 when the One Big Beautiful Bill Act (OBBBA) was signed into law. The legislation permanently extended the lower individual tax rates introduced by the Tax Cuts and Jobs Act of 2017, removing the threat of a bracket increase that had previously pushed many IRA owners toward urgent conversions. It also added a $6,000 senior deduction for taxpayers aged 65 and older, available through 2028, which reduces taxable income and creates additional bracket room for larger conversions.

Separately, the SALT deduction cap was raised from $10,000 to $40,000 for 2025 and $40,400 for 2026, increasing 1% per year through 2029, before reverting to $10,000 in 2030. The expanded cap phases out for taxpayers with modified adjusted gross income above $500,000, reducing the deduction by 30% of the excess but not below $10,000. For residents of high-tax states who itemize, that additional deductible room can meaningfully soften the net cost of a Roth conversion.

The OBBBA did not eliminate or limit conversions. There are no age-based restrictions and no ceiling on the amount converted. What the law changed is the urgency. Before its passage, owners feared a rate spike after 2025. With rates now locked in longer, the conversion decision has become less time-pressured and more a function of bracket discipline, the likely bracket of your heirs, and how many years remain for the Roth to compound.

How to Actually Pull This Off

1. 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.
2. Pay the conversion tax from a taxable account, not from the IRA itself. Otherwise you shrink the base your heirs inherit.
3. Name beneficiaries directly on the account. A will does not override an IRA beneficiary form.
4. Start the Roth’s 5-year clock early. Open and fund a Roth (even $100) years before you plan any big conversion.
5. 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 approximately 5.08% as of mid-October 2026 and the Fed funds target range sitting at 3.75% to 4.00%, even a conservatively invested inherited Roth can grow meaningfully across that decade with zero tax friction.

The Catch Nobody Mentions

Roth conversions are irreversible. The Tax Cuts and Jobs Act eliminated recharacterization 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 in aggregate than simply letting them inherit the Traditional IRA and pay their own tax over 10 years. Run the numbers in both directions before committing.

Two additional traps deserve attention. First, the Roth account’s own 5-year rule must be satisfied at your death for 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 reaches 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 add a meaningful surcharge on conversion income, while others (Florida and Texas among them) impose no state income tax at all. Confirm your state’s treatment before pulling the trigger.

The core trade remains straightforward. 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 claims a share of that ending balance. On a Roth, your kids keep it all.

Editor’s note: This article was updated to reflect the current 10-year Treasury yield of approximately 5.08% as of mid-October 2026 (up from the prior 4.79% figure), the corrected Fed funds target range of 3.75% to 4.00%, and additional detail on the OBBBA SALT deduction: the 2026 cap is $40,400 (not $40,000), the phaseout begins at $500,000 MAGI and reduces the deduction by 30% of excess income but no lower than $10,000, and the cap reverts to $10,000 in 2030.

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