The 10-Year Rule: Why Your Heirs Could Pay More Tax Than You
- 7 days ago
- 6 min read
By Kenneth M. Ford, AWMA®, AIF®
Last Updated: July 2026
Estimated Reading Time: 7–8 minutes
Quick Answer
Under current law, most non-spouse beneficiaries must empty an inherited IRA within ten years of the owner’s death. The old “stretch IRA,” which allowed distributions across a beneficiary’s lifetime, is gone.
For your children, this frequently means absorbing a seven-figure account during their peak earning years, at their own highest marginal rates — potentially higher than the rate you would have paid on the same dollars.
A Roth that your children inherit is drawn tax-free. The 10-year rule still applies, but there is no income tax on the withdrawals.
For most households, estate tax is not the issue — the federal exemption is $15 million per person, $30 million per couple. The issue is the income tax you hand down.
The question becomes simple: would you rather pay the tax on these dollars now, at your rate — or have your children pay it later, at theirs?
Why This Matters
For families of means, a Roth conversion is frequently as much an estate decision as a retirement one.
But the estate question is almost certainly not the one you think it is.
It’s Not the Estate Tax
The federal estate and gift tax exemption stands at $15 million per person — $30 million per couple.
For the overwhelming majority of households, that removes estate tax from the conversation entirely.
What remains is the income tax your heirs will pay on what they inherit. And for a seven-figure traditional IRA, that number is usually far larger than most people expect.
The 10-Year Rule Replaced the Stretch IRA
It used to be that a child inheriting your IRA could “stretch” withdrawals across their own life expectancy — small annual distributions, modest tax, decades of continued tax-deferred growth.
That ended. Under current law, most non-spouse beneficiaries must empty an inherited IRA within ten years of the owner’s death.
Ten years. Not forty.
Why Ten Years Is So Expensive
Consider who your children are when they inherit.
If you die in your eighties, your children are likely in their fifties — which is, for most professionals, the highest-earning decade of their lives. Their marginal rates are the highest they will ever be.
Now drop a seven-figure traditional IRA on top of that income and require them to withdraw all of it within ten years.
A $1.5 million inherited IRA drawn down over a decade adds roughly $150,000 a year to a child who may already be earning $200,000. Every dollar of it is ordinary income, taxed at their marginal rate — which could easily be 32% or 35%.
That may well be higher than the rate you would have paid on the same dollars.
From your children’s perspective, a large traditional IRA is a tax bill with your name on it.
What a Roth Changes
A Roth your children inherit is drawn tax-free.
The 10-year rule still applies — inherited Roths must also be emptied within ten years. But there is no income tax on the withdrawals. The ten years become a question of timing rather than a question of cost.
So the comparison is clean:
If your rate today is lower than your children’s rate tomorrow, converting transfers wealth from the IRS to your family. If it’s higher, it doesn’t.
That’s the whole calculation.
The Spouse Exception
A surviving spouse is treated far more favorably. They can treat an inherited Roth as their own — with no required distributions at all — and let it continue compounding untaxed for the rest of their life.
This pairs with a hard truth about what happens to the survivor’s own tax situation once they begin filing as a single taxpayer.
The Exception That Reverses Everything
If you plan to leave the account to charity, everything above inverts.
A charity pays no income tax on an inherited traditional IRA.
Converting first — paying tax on money that would have escaped taxation entirely — is pure waste.
The efficient structure for charitably-inclined families is usually the reverse: leave the traditional IRA to the charity, leave the Roth to the children, and use Qualified Charitable Distributions (up to $111,000 in 2026) to satisfy RMDs without the income ever appearing on your return.
Advisor Insight
We ask one question early in every legacy conversation: what are your children’s tax brackets?
Most clients have never thought about it. But it is the number that decides whether a conversion is a gift or a waste.
If your children are physicians, attorneys, or executives in their peak earning years, they may well pay a higher rate on your IRA than you ever would. Converting at your rate, today, is then one of the most efficient transfers available to you.
If your children have modest incomes — or if the money is going to charity — the arithmetic can point the other way entirely.
The answer depends on their return, not just yours.
Example
Margaret is 76 and widowed, with $1.5 million remaining in a traditional IRA. Her own income is modest: Social Security, a small pension, and her RMDs place her in the 22% bracket.
Her two children are both in their early fifties. One is a surgeon; the other is a partner at a law firm. Both are comfortably in the 35% bracket.
If Margaret leaves the IRA as-is, her children must empty it within ten years — adding roughly $75,000 each per year to incomes that are already high. That income will be taxed at 35% or more.
If Margaret instead converts steadily at 22%, paying the tax from her taxable savings, her children inherit a Roth and pay nothing.
The dollars are the same. The difference is whose rate applies.
Hypothetical illustration. Not a prediction, recommendation, or guarantee. Individual circumstances vary.
Common Mistakes
Assuming the estate exemption solves the problem. It addresses estate tax, not the income tax your heirs owe.
Never asking what your children’s tax rates are. It’s the number the whole decision turns on.
Converting money destined for charity. A charity pays no income tax on a traditional IRA.
Forgetting that inherited Roths also have a 10-year rule. They do — but with no tax on the withdrawals.
Treating a spouse and a child as the same beneficiary. They are not. Spouses have far more flexibility.
Frequently Asked Questions
Does the 10-year rule apply to inherited Roth IRAs? Yes. Most non-spouse beneficiaries must empty an inherited Roth within ten years as well. The difference is that the withdrawals are generally tax-free.
Are there exceptions to the 10-year rule? Yes — certain “eligible designated beneficiaries,” including surviving spouses, minor children of the owner, disabled or chronically ill individuals, and those not more than ten years younger than the owner. Rules are detailed; consult your advisor and CPA.
Should I convert if my children have low incomes? Possibly not. If their rate is lower than yours, leaving the traditional IRA may be more efficient.
What if I’m leaving the IRA to charity? Then converting is usually a mistake. Leave the traditional IRA to the charity and the Roth to your children.
Is the estate tax exemption permanent? It is set at $15 million per person under current law. “Permanent” in tax policy means until Congress changes it.
Key Takeaways
Most non-spouse heirs must empty an inherited IRA within 10 years: The inherited account generally cannot remain tax-deferred indefinitely.
Many children inherit during their highest-earning years: IRA withdrawals may be taxed at higher marginal income tax rates.
For most families, income tax—not estate tax—is the bigger concern: Federal estate tax exemptions are historically high, but inherited traditional IRA distributions are generally taxable.
A Roth IRA generally passes to heirs income tax-free: Qualified distributions from an inherited Roth IRA are typically not subject to federal income tax.
Compare your tax rate to your heirs' expected tax rate: If your children's future tax rate is likely to be higher than yours, a Roth conversion may shift more wealth from taxes to your family. If not, converting may provide less benefit.
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Final Thoughts
The most enduring legacy isn't always the largest inheritance. It's often the most tax-efficient one.
Would you rather pay the tax on these dollars now, at your rate—or have your children pay it later, at theirs?
Leave More Than an Account Balance
The way your retirement assets are passed to your family can have a lasting impact on what they ultimately keep after taxes. Whether a Roth conversion makes sense depends not only on your situation, but also on the tax circumstances of the people who may one day inherit your accounts.
A Roth Conversion Analysis can help evaluate whether converting today could improve the after-tax legacy you leave to your family while supporting your own retirement goals.
Disclaimer
This article is for educational purposes only and should not be considered tax, legal, or investment advice. Roth conversions, Medicare premiums, IRMAA surcharges, required minimum distributions, and retirement income strategies should be evaluated based on your individual circumstances, including your income sources, tax situation, retirement goals, and broader financial plan. All examples are hypothetical, are provided for illustration only, and are not a guarantee or prediction of any particular result; individual results will vary. Figures reflect 2026 federal parameters and are subject to change. Tax laws, Medicare rules, premium amounts, and IRMAA thresholds change over time. Consult qualified tax and financial professionals before making financial decisions.
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