I’ve been a CPA since 1981, and few rules have changed family tax bills as quietly as this one. If you leave a traditional IRA to your adult children, they generally have 10 years to empty it. Every dollar they take out is taxed as ordinary income, on top of whatever they already earn.
On a $500,000 IRA, that’s roughly $50,000 a year of extra taxable income if they spread it evenly, before any growth. Wait until year 10 and it can be $500,000 or more in a single tax year.
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What the 10-year rule says
The SECURE Act changed the rules for IRA owners who died after 2019. Before that, most heirs could “stretch” withdrawals over their own life expectancy and keep the yearly tax small. Now most non-spouse beneficiaries, including adult children and grandchildren, must empty the account by the end of the 10th year after the year the owner died.
A few beneficiaries are exempt and can still stretch withdrawals: a surviving spouse, a minor child of the owner (until age 21), someone disabled or chronically ill, and anyone not more than 10 years younger than the owner.
The detail that catches heirs off guard: yearly withdrawals
Under IRS final regulations issued in 2024, if the original owner had already started required minimum distributions, the heir generally must take a withdrawal every year during the 10 years and still empty the account by the end. The IRS waived the penalty for missed yearly withdrawals from 2021 through 2024. That relief has ended.
Miss a required withdrawal and the excise tax is 25% of the amount that should have come out, cut to 10% if it’s corrected in time. On a six-figure account, that’s real money for a paperwork mistake.
Is your IRA set up for the people who’ll inherit it? A fiduciary advisor can map the withdrawals and the tax brackets for you and your heirs. Get matched with vetted fiduciary advisors. The questionnaire takes about 10 minutes, and you decide whether and when to talk to anyone.
Why the timing matters as much as the amount
Your children will likely inherit in their 50s or 60s, often their peak earning years. Extra IRA income stacks on top of their salaries. Pulled out evenly, a large IRA can push part of their income into a higher bracket for a decade. Pulled out all at once in year 10, much of it can be taxed at the top federal rate of 37%, plus any state income tax.
The same $500,000 can cost very different amounts in tax depending on when and how it comes out. That’s a planning problem, and it’s easier to solve while you’re still here.
Not sure which approach fits your family? Compare fiduciary advisors who specialize in retirement tax planning.
Moves to consider now, while you’re in control
Roth conversions in lower-bracket years. If your tax rate today is lower than your heirs’ will be, converting part of a traditional IRA to a Roth means you pay the tax at your rate. Heirs still face the 10-year deadline on an inherited Roth, but qualified withdrawals are generally tax-free, and they don’t have to take yearly withdrawals along the way.
Name beneficiaries on purpose. A spouse can treat an inherited IRA as their own. A child in a low bracket pays less tax on the same withdrawal than a child in a high one. Check the beneficiary form, not just your will; the form controls the account.
Give from the IRA if you give to charity. At 70½ or older, qualified charitable distributions go straight from your IRA to a charity and aren’t taxed as income. Leaving pre-tax money to charity and Roth or taxable money to family can lower the family’s total tax bill.
Tell your heirs the plan. The best plan fails if the person inheriting doesn’t know there’s a yearly withdrawal to take.
None of these is right for everyone. A conversion that saves your heirs money can raise your own Medicare premiums or tax bill. That’s why the math is worth running with a professional.
Talk to a fiduciary before your heirs inherit the tax bill. SmartAsset’s free matching service connects you with vetted fiduciary financial advisors, who are legally required to act in your best interest. More than 2 million people have used it, and nearly all matched advisors offer a free first meeting.
What to expect: a questionnaire of about 10 minutes covering your age, savings and goals, and a phone number near the end. You control whether and when you respond to anyone. There’s no cost and no obligation.
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The bottom line
A $500,000 IRA can hand your children a tax bill of well over $100,000, depending on their brackets and when they withdraw. The families who keep more of it have one thing in common: they planned the withdrawals and the brackets before anyone inherited anything. A conversation now costs nothing.
Get a free match with a fiduciary advisor. About 10 minutes, no obligation, and you decide who to talk to. Start the free questionnaire
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