He Wants to Leave Everything to His 3 Sons and Not the Government. The IRA Is the One Asset That Guarantees They Pay

He is 81, recently widowed, and working through the paperwork a death leaves behind. In a letter to 24/7 Wall St., he said he wants to leave as much as possible to his 3 sons and keep it away from the government, both while he is alive and after he is gone.

He holds a rollover IRA and plans to put a large amount of cash into building a house. He wants to leave the IRA alone for the boys. Of everything he has, that account is the one asset sure to hand his sons a tax bill.

Your IRA Gets No Step-Up at Death

Most inherited property starts over with a new tax basis. Under IRS Publication 530, an heir’s basis in an inherited home is generally the FMV of the home on the date of the decedent’s death. That wipes out the gain built up during his lifetime. A son who inherits the new house and sells it soon after owes little or no capital gains tax.

The IRA is carved out of that rule. Internal Revenue Code Section 1014(c) says the basis rule “shall not apply to property which constitutes a right to receive an item of income in respect of a decedent”. A traditional IRA fits that description exactly. Publication 590-B states that beneficiaries “must include in their gross income any taxable distributions they receive”, and those withdrawals are taxed as ordinary income.

Estate Tax Is the Bill He Will Likely Never See

Estates of people who die in 2026 have a federal basic exclusion amount of $15,000,000. Most families never get close to that line. Some states charge their own estate or inheritance taxes at lower thresholds, so his home state still matters. For his sons, the federal bill that actually lands is income tax, and it comes with a deadline.

Ten Years, Stacked on Their Paychecks

Eligible designated beneficiary status covers only the owner’s surviving spouse, the owner’s minor child, a disabled individual, a chronically ill individual, or any other individual who is not more than 10 years younger than the owner. Healthy adult sons fall outside that list. They must empty the account by December 31 of the year containing the 10th anniversary of the owner’s death. He is already past his required beginning date, since required distributions start in the calendar year in which you reach age 73. So his sons also face required minimum distributions every year along the way.

Take an example IRA of $900,000. Each son inherits $300,000. Spread evenly, that adds $30,000 a year to his income. A married son already reporting $200,000 of taxable income rises to $230,000. That is past the 2026 joint-filer threshold of $211,400, where the 24% bracket begins. A son who pushes most of his share into year 10 can land at $500,000, deep in the 32% bracket, which starts above $403,550.

Compare the father’s own brackets. As a single filer in 2026, he pays 22% on income over $50,400, and 24% starts only above $105,700. Money he withdraws in that range gets taxed at his rate. Money he leaves in the account gets taxed at theirs.

Drawing Down the Account He Wants to Protect

Following that logic turns his plan around. Three moves come out of it:

• Pay for the house with IRA money and keep the cash. Cash passes to heirs with no income tax built in, and the house gets a new basis at his death. Spreading construction withdrawals across several tax years moves taxable dollars out at his rates.
• Convert slices to a Roth. A converted amount is normally included in income on your return for the year of conversion, and his required distribution for the year can’t be converted. Once the five-year holding period is met, Roth payments made to a beneficiary are qualified distributions and owe no tax.
• Give while living. He can take from the IRA, pay the tax, and give each son up to $19,000 under the 2026 annual gift exclusion.

Each move means paying some tax now to shrink a bigger bill later. The trade pays off when his bracket is below his sons’ brackets. His real balances and his sons’ real incomes can be projected by a CPA.

Fix the Form That Overrides His Will

The IRA goes to whoever is named on the custodian’s beneficiary form, no matter what his will says. His late wife is most likely still listed as primary beneficiary. If no contingent beneficiaries are named, many custodial agreements send the account to his estate. That draws it into probate, and with no designated beneficiary, payouts follow the owner’s life expectancy instead of each son’s own schedule. A outdated beneficiary form is one of the most common ways an estate plan quietly falls apart, which is why we put the full cleanup checklist in a free estate guide here.

This month, he should call the IRA custodian, ask for the current beneficiary designation in writing, and name his three sons as primary beneficiaries in equal shares, with contingents behind them. Then he should ask a CPA to put his bracket next to each son’s. Remember this: $15,000,000 is an estate tax line he will probably never reach, while every pre-tax dollar in that IRA is taxable income for his sons.

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