His Father Will Leave Him a $300,000 IRA He Doesn’t Need. If He Turns It Down in Writing Within Nine Months, It Goes Straight to His Kids as the Backup Beneficiaries, and the IRS Won’t Call It a Gift

If your father named you as the beneficiary of his traditional IRA, inheriting it in your peak earning years will likely mean a tax bill at your high marginal rate. Say the balance is $300,000 and you don’t need the money. A rule called a qualified disclaimer lets you refuse an inherited IRA in writing. The account then passes to the next in line, often your kids, and the IRS doesn’t count it as a gift from you.

How Refusing an Inheritance Moves It Down a Generation

A disclaimer is a formal refusal to accept an inheritance. Federal law treats the disclaimed property as if it “had never been transferred to such person”. Many state disclaimer laws treat you as if you died before your father, so the account skips you and goes to the next beneficiary.

Treasury regulations use this exact result as an example of a valid disclaimer (26 CFR 25.2518-2(e)). Since you never owned the account, you never gave it away. If you took the money yourself and passed it along, you’d owe income tax first, and you’d have to report any gift above the $19,000 annual exclusion per recipient for 2026.

What Section 2518 Requires Before the IRS Signs Off

The rule sits in 26 U.S. Code § 2518. Under subsection (b), the refusal has to be permanent and unqualified, and all of the following must apply:

• The refusal is in writing.
• The transferor’s legal representative or the holder of legal title receives it within 9 months of the transfer that created your interest. For an IRA, the title holder is usually the custodian, and the clock starts when your father dies.
• You haven’t accepted the interest or any of its benefits.
• The property passes without any direction from you to the decedent’s spouse or to someone other than you.

His Beneficiary Form Decides Who Gets the Money

The IRA’s beneficiary designation form determines where the account goes, whatever you prefer. Your children get it only if they’re named as contingent (backup) beneficiaries, or if the account’s terms or your father’s will send it to them. Without a named contingent beneficiary, the custodian’s default terms may send it to his estate. If an estate inherits and the owner died before the required beginning date, the 5-year rule applies, forcing withdrawals into a shorter window.

And if the money would come back to you as an heir, the disclaimer can fail for that share (26 CFR 25.2518-2(e)(3)). Read the form before you do anything. Parents: naming contingent beneficiaries is what makes this option possible.

Simple Mistakes That Wreck a Disclaimer

Treasury regulations list using the property, accepting dividends or interest, and directing others to act on it as signs of acceptance (26 CFR 25.2518-2(d)(1)). Retitling the IRA in your name or choosing new investments can disqualify you. Required withdrawals get easier treatment.

In Revenue Ruling 2005-36, the IRS said taking a required distribution counts as accepting only that portion (as described in a later IRS letter ruling), so you can still disclaim the rest. You can also refuse just part of the account: § 2518(c)(1) treats a disclaimer of an “undivided portion” as qualified.

Lower Tax Brackets Can Save Five Figures

Most non-spouse beneficiaries must empty the account by December 31 of the year that includes the 10th anniversary of the owner’s death. That deadline is measured from your father’s death, and your kids inherit whatever time is left. If he died on or after his required beginning date, beneficiaries must also take annual distributions during those years (Publication 590-B). Grandchildren can’t use the minor-child exception, because it covers only “a child of the employee” who hasn’t reached majority.

For 2026, the 35% bracket starts at $256,225 of income for single filers, and the 12% bracket starts above $12,400. If all $300,000 were taxed at 35%, the bill would be $105,000. At 12%, it would be $36,000. That’s a $69,000 gap. Real numbers depend on each heir’s other income and when they withdraw.

Watch out for the kiddie tax, which can wipe out that savings. IRA withdrawals count as unearned income under § 1(g)(4). Kids under 18, and some 18-to-23-year-olds who don’t earn enough to cover half their own support, can owe tax at a parent’s rate on unearned income above $2,700 (the 2026 threshold) if either parent is alive. You would be, so this works best when your kids are young adults with modest incomes.

Other Ways Families Use Disclaimers

A surviving spouse can disclaim to the children so more of the estate uses the deceased spouse’s exemption, which is $15,000,000 for 2026 deaths. Some beneficiaries disclaim to keep assets away from their own creditors, but creditor protection varies by state. Medicaid often treats a disclaimer as an asset transfer that triggers a penalty period.

Nine Months and One Document to Read First

A disclaimer can’t be undone, so work with an estate attorney who can also check your state’s disclaimer rules. Before you touch the account, and well before nine months have passed since your father’s death, get a copy of his beneficiary designation form. That one page decides whether the money ever reaches your kids, and it’s part of the other paperwork (wills, ownership, trust language) we walked through in a free estate checklist.

Contact [email protected] for any questions or corrections.