Leave a $1 Million IRA to Kids in Their Peak Earning Years and the IRS Collects About $350,000. Convert It in Your 60s and the Same Money Is Taxed at 22%, Not 35%, Because Whose Bracket Pays Is a Choice
Most parents assume leaving a traditional IRA to their kids is the generous move, but the tax code quietly decides who actually keeps the money. The bracket that pays makes all the difference, and it may not be the one…
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Consider a married couple, both 63, sitting on a $1 million traditional IRA they don’t expect to spend. Their plan is to leave it to their two grown children. The tax code has its own plan for that money.
Adult children who inherit an IRA must empty it within a decade, with every dollar stacked on top of their own paychecks. If the kids are high earners, the IRS takes in about $350,000. If the parents convert the same money to a Roth in their 60s, the bill falls to about $220,000. The only difference is whose tax bracket pays.
How the 10-Year Rule Moves Your IRA Onto Your Kids’ Tax Return
When an owner passes after 2019, all distributions must be made by the end of the 10th year after death, except for distributions made to certain eligible designated beneficiaries. Spouses, minor children, disabled or chronically ill heirs, and heirs close to the owner’s age get easier treatment. Healthy adult children don’t.
The deadline is strict. If the owner died in 2025, the heir must empty the account by December 31, 2035. Parents in their 80s usually leave accounts to children in their 50s, right when those children earn the most.
Two High Earners Inherit $1 Million and Pay 35%
Using 2026 federal brackets: each child inherits $500,000 and files jointly with taxable income of $550,000. We ignore investment growth, which would make both cases larger.
In 2026, the 35% bracket for joint filers covers taxable income over $512,450. The 37% rate starts above $768,700. Each child withdraws $50,000 a year, which raises taxable income to $600,000. That’s still inside the 35% band.
Each withdrawal costs $17,500 in federal tax. Over 10 years, each child pays $175,000, so the two together pay $350,000. The inherited IRA dollars become the top layer of income, taxed at the top rate.
That’s only the federal bill. Heirs in high-tax states such as California or New York also owe state income tax. An heir who waits and empties the account in year 10 can push a chunk past $768,700 and into the 37% bracket.
Converting in Your 60s Fills the 22% Bracket on Purpose
Between retirement and required minimum distributions in your 70s, income often drops. Those low-income years are when Roth conversions are cheapest.
Suppose the couple’s pensions and other income total $133,000. After the 2026 joint standard deduction of $32,200, taxable income is $100,800, the top of the 12% bracket. The 22% bracket runs to $211,400, leaving $110,600 of room each year.
Converting $110,600 costs $24,332 a year in federal tax. About nine years of conversions moves the full $1 million, for a total tax bill of $220,000. That keeps $130,000 in the family.
| Path | Who Pays | Marginal Rate | Federal Tax on $1 Million |
|---|---|---|---|
| Kids inherit the traditional IRA | Children, peak earning years | 35% | $350,000 |
| Parents convert over about nine years | Parents, starting at 63 | 22% | $220,000 |
An Inherited Roth Keeps the 10-Year Clock but Drops the Tax Bill
Children who inherit a Roth IRA must empty it within 10 years. Once the five-year holding period is met, a payout made to a beneficiary or to your estate after your death counts as a qualified distribution and isn’t taxed. Growth after the conversion comes out tax-free too.
The edge gets bigger if parents pay the conversion tax from a taxable brokerage account. The full $1 million lands in the Roth, and the tax payment works like a gift to the kids that never shows up on a gift tax return.
Fine Print That Can Shrink the $130,000 Advantage
- Medicare surcharges (IRMAA): Conversions made at 63 or later count toward Medicare premiums two years later. A conversion year with income of $243,600 can land in a surcharge level. Appeals on Form SSA-44 cover life-changing events such as retirement. A voluntary conversion doesn’t qualify.
- Social Security: If benefits have started and aren’t yet 85% taxable, conversion income can make more of them taxable, pushing the real marginal rate above 22%.
- Your heirs’ actual brackets: If a child earns modest income or plans to retire early, leaving the traditional IRA can win.
When Leaving the Traditional IRA Still Wins
Leaving the traditional IRA still makes sense for parents whose heirs earn modest incomes, for money going to charity, and for retirees who can’t pay the conversion tax without draining the IRA itself. For everyone else, the deciding question is which bracket pays: yours at 22% or your kids’ at 35%. The stretch between a saver’s last paycheck and first required withdrawal may be the lowest tax rate they ever see again, which is the whole subject of our free Roth Window guide.
A plan that stretches over decades like this is worth running with a CPA or fiduciary advisor using your children’s real tax returns, not estimates.
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Vilma Rios is a tax professional and tax content contributor with more than 15 years of experience in tax and accounting. She specializes in federal tax research, tax education, and translating complex tax rules into clear, practical information for individuals, families, and small-business owners.
Vilma is a Content Tax Contributor II with the National Association of Tax Professionals (NATP), where she contributes to tax education and professional content. She has also presented tax information through webinars, including Spanish-language tax education, and has appeared on Telemundo 47 discussing tax topics and helping viewers understand important tax-filing requirements.
Her experience also includes tax and accounting work, tax research, IRS-related matters, and public tax education. While in college, Vilma volunteered in an IRS-sponsored tax assistance program and was recognized for her community service by local and state officials.
Known as “Your Tax Geek,” Vilma is passionate about making taxes easier to understand and helping people navigate an increasingly complex tax system.
