Name a 10-Year-Old Grandchild on Your IRA and Her Withdrawals Are Taxed at Her Parents’ 35% Rate Until She’s 19. The “Stretch” Congress Left for Minors Only Applies to Your Own Children
A grandfather rewrote his IRA beneficiary form to skip a generation and give his granddaughter a financial head start, but two tax rules buried in the federal code turned that gift into something her parents never saw coming.
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A retired engineer, widowed and well past the age when his own required distributions began, wanted his traditional IRA to do one thing: give his granddaughter a head start. He crossed his son’s name off the beneficiary form, wrote in the 10-year-old’s name, and died in 2025 with $500,000 in the account.
His son and daughter-in-law file jointly, and their taxable income sits inside the 35% bracket. They planned to draw $50,000 a year from her inherited IRA. Their CPA ran the first year on Form 8615, and nearly every dollar came back taxed at 35%, the parents’ rate.
Congress Saved the Stretch for the Owner’s Own Children
The SECURE Act keeps lifetime payouts for a short list of “eligible designated beneficiaries.” The minor on that list is “a child of the employee who has not reached majority” under 26 U.S.C. § 401(a)(9)(E)(ii)(II). That child takes small life-expectancy distributions until majority, then gets 10 years after such date to empty the account. Most of the money comes out in adulthood.
A grandchild lands in the general pool of designated beneficiaries. Publication 590-B requires that account to be fully distributed by December 31 of the year containing the 10th anniversary of death. For a 2025 death, that deadline is December 31, 2035. Because the grandfather had passed his required beginning date (age 73 for anyone born on or after January 1, 1951), she also owes annual minimums in the years before the deadline, based on her own life expectancy.
Then the kiddie tax applies. Under 26 U.S.C. § 1(g), it covers a child who has not attained age 18 before the close of the taxable year, plus an 18-year-old whose earned income doesn’t exceed half her support. IRA payouts count: the Form 8615 instructions list pension and annuity income as unearned. For 2025, unearned income over $2,700 is taxed at the parent’s rate when that rate is higher. She was 10 in 2025, so she turns 19 in 2034. Withdrawals from 2026 through 2033 fall in her kiddie tax years.
Eight Withdrawals at Her Parents’ 35% Rate
Assumptions: 2025 federal brackets and thresholds, no investment growth, and even $50,000 draws.
- The first $1,350 is covered by her dependent standard deduction. The next $1,350 is taxed at her own 10%: $135.
- The remaining $47,300 is taxed at 35%, the joint bracket that runs from $501,051 to $751,600: $16,555.
- Federal tax per year: $16,690.
Without the kiddie tax, the same withdrawal on the single schedule (10% up to $11,925, 12% up to $48,475) costs $5,617. The parents’ rate adds $11,073 a year and $88,584 over eight years. The eight-year federal bill comes to $133,520.
Turning 19 ends the kiddie tax only if she skips full-time school. Form 8615 also covers a full-time student at least age 19 and under age 24 whose earned income doesn’t exceed half her support.
A Roth Conversion Moves the Bill to Grandpa’s Bracket
The grandfather had a better option while he was alive. If he had converted the IRA to a Roth over several years, keeping each year’s conversion inside the single 24% band of $103,351 to $197,300, the total tax would have been $120,000, paid once.
Roth distributions made to a beneficiary (or to the estate of the individual) on or after the death of the individual are qualified and excluded from gross income, as long as the Roth’s five-year clock has run. With no taxable income, the kiddie tax has nothing to apply to. That one-time $120,000 is $13,520 less than the granddaughter’s bill for the first eight years alone, and ten years of growth come out tax-free.
Families who already hold the account have a narrower fix. Take only the required minimum through 2033, then make the larger withdrawals in 2034 and 2035, provided she isn’t a dependent full-time student in those years. This is one of nine IRS rules that quietly drain inherited retirement accounts, and we mapped the rest in a free guide here.
Five Moves to Make Before the Next Withdrawal
- Pull every IRA and 401(k) beneficiary form and flag any grandchild under 19 named on a pretax account.
- Heirs’ parents: ask the custodian in writing whether the owner had reached the required beginning date. If so, annual minimums are due, and anything left after the 10-year deadline triggers the excise tax that Publication 590-B describes.
- Run each planned withdrawal through Form 8615 alongside the parents’ draft joint return before the custodian issues the check.
- Map out the grandchild’s school plans. Full-time enrollment from 19 through 23 keeps the parents’ rate in place.
- Owners: price out Roth conversions inside the 24% band for this year and next, and confirm the date of your first Roth contribution so the five-year clock is satisfied. An estate attorney or CPA can run these numbers for your family.
The number to remember is $88,584. That is the extra tax on eight years of $50,000 withdrawals when the beneficiary form names a grandchild instead of the owner’s own child.
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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.
