What happens when your kids inherit your IRA?
November 8, 2026
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Show Notes
Eddie and Betty's Conversation
Welcome to The American Retirement Advisor. I'm Betty, Eddie's here with me in the studio today, and we are wrapping up our week-long series. This is part seven of our series on David Schaeffer's guide to RMDs, and today we get to the part that I think trips up the most families: what happens to your IRA after you're gone.
Thanks for having me. And yeah, this one's the payoff of the whole series, because you can do everything right during your lifetime and still hand your kids a tax bill you never saw coming.
Ian Schaeffer's piece opens with this line that stopped me cold. He says many people spend decades protecting a pile of money without ever deciding where it goes.
Which is such a good way to put it. You saved it, you grew it, you protected it, and then the handoff is just kind of... assumed. Like someone else will figure it out.
And the IRS will do it for you if you don't.
That's their specialty.
So let's start with the big change, because there used to be something called the stretch IRA. Can you explain what that was and why it matters that it's gone?
So the old rule was actually pretty generous. If you inherited an IRA, you could spread the withdrawals out over your own lifetime. So if you were, say, forty when your parent died, you had potentially decades to let that money keep growing and take small amounts each year.
Which also meant smaller tax hits each year.
Exactly. Small withdrawals, small tax bills, money still compounding. It was a meaningful benefit. And for heirs of owners who died after 2019, it is largely gone.
The SECURE Act.
Right. Now most non-spouse beneficiaries have ten years to empty the account. That's it. End of year ten, it's got to be zeroed out.
That's a decent chunk of time, though.
It does until you think about when those ten years fall. For a lot of heirs, they're inheriting in their forties or fifties, which are peak earning years. So now they're pulling taxable IRA money on top of a salary that's already pretty high.
Oh, that's a rough combination.
And there's no way around the timing. The ten-year clock starts the year after the owner dies. You don't get to choose a more convenient decade.
Okay so who still gets the old stretch? Because the article mentions there are some exceptions and I feel like a lot of people don't know this.
A surviving spouse has the most flexibility, including the option to treat the IRA as their own. Minor children of the owner can stretch until age twenty-one, and then the ten-year clock kicks in from there. Disabled or chronically ill beneficiaries qualify. And someone who isn't more than ten years younger than the owner.
That last one surprises people. So a sibling close in age, or a friend you named as beneficiary.
If the gap is ten years or less, they can still stretch. But for most adult children? Ten years. That's the world they're living in now.
Alright, here is the part of Ian Schaeffer's piece that I genuinely did not see coming. I thought if you had ten years, you could just wait and take it all in year ten. Like, lump sum at the end, deal with it then.
A lot of people think that.
That is not how it works.
Not if the original owner had already started taking RMDs. In that case, the heirs on the ten-year clock also have to take a withdrawal every single year, years one through nine, and then empty the account in year ten.
Wait, so it's not just a ten-year window, it's ten of those required withdrawals, year after year.
For those heirs, yes. And the IRS finalized those rules in 2024. Penalties for missing those annual withdrawals start in 2025.
So if someone inherited an IRA from a parent who was already in RMD territory and just thought, I'll leave it alone for nine years and take it all at the end...
They could be looking at missed RMD penalties for every year they skipped. And that is not a small problem.
This is one of those things where I'd say: if you've already inherited an IRA and you're not sure what your distribution schedule looks like, please talk to one of the advisors at American Retirement Advisors before a missed withdrawal bites you.
The team knows the specifics here. It's not a question to guess at.
Okay, let's talk about Roth, because this is where the mood of the conversation shifts a little.
Right, because with Roth you start to see options rather than just obligations.
The original owner never has to take RMDs from a Roth IRA. No required withdrawals during your lifetime.
Because the tax was already paid going in. The government isn't waiting on anything.
And as of 2024, that also applies to Roth accounts inside workplace plans. Like a Roth 401k or Roth 403b.
Which is a relatively new change and a meaningful one. Before 2024 those did have RMDs. Now they don't.
For your heirs, when they inherit a Roth, it's generally tax-free to them.
It still runs on the ten-year clock, so they do have to empty it within ten years. But they're not paying income tax on what they take out.
That's a very different inheritance than a traditional IRA where every dollar they pull out is ordinary income.
Night and day. And that's exactly why the article spends time on Roth conversions, because in the years before RMDs begin, you have a window to move money from the taxed-later pile to the never-taxed-again pile.
I like that framing. Two piles.
The trade-off is that a conversion is taxable in the year you do it. You're not escaping the tax, you're choosing when it happens and potentially at a lower rate than your heirs would face.
So you're basically saying: I'll pay this tax now at my rate, so my kids don't pay it later at theirs.
And if your kids are in their peak earning years when they inherit, their rate could be considerably higher than yours right now.
There's also a sequencing rule here that the article mentions and I want to make sure we don't skip it.
The RMD has to come out first. Before you can convert anything in a given year, whatever your required minimum distribution is for that year has to be taken. You can't convert your RMD itself.
So you can't just roll your RMD into a Roth and call it even.
Correct. RMD out, then conversion on whatever's left. Different transactions entirely.
Okay the other thing in this article that I want to spend a minute on is charitable giving from the IRA. Because I feel like this is something people hear about but don't fully understand why it's different from just writing a check to your charity.
The article flags this as one of the decisions that actually changes the outcome, and it's such a good point. If you don't need your RMDs to live on, the question is who is that money for. And if some of it is for charity, giving it directly from the IRA is a very different transaction than taking the distribution, paying tax on it, and then writing a check.
Because if you take it out first, it's income. Taxable income.
But the article is pointing at something broader too. If you have money you don't need for living expenses, which accounts you spend from and which you leave behind deserves a plan, because a Traditional IRA is taxable to your kids as they take it out.
So thinking about which account you're spending from and which you're leaving matters.
The sequencing of that is a real planning question. Not one to answer with a general rule, because it depends on your tax situation, your kids' tax situation, all of it. That's a conversation for your advisor and your tax professional together.
Ian Schaeffer's piece also has this point about beneficiary designations and I want to flag it because it sounds basic but it causes real problems.
The form on your IRA overrides your will. A lot of people don't realize that. Your will might say one thing and the account goes somewhere else entirely because the form was never updated.
After a marriage, a divorce, a death in the family.
Any of those. You update the will but forget the account. Or you set it up thirty years ago and just never looked at it again.
That is such an easy fix that so few people do.
It costs nothing to check and update. It just requires actually doing it.
The article also mentions timing withdrawals around your tax bracket and the Medicare income thresholds. We did a whole episode on the Medicare piece, that's part five of this series, but I want to name it here because it's in the article's list of decisions that matter.
And it connects directly to the Roth conversion conversation, because if you convert in a year where your income is low, you might stay under those Medicare thresholds. Convert in the wrong year and you've triggered higher premiums.
It's all one picture, isn't it. The bracket, the Medicare lines, the RMD amount, the conversion, the beneficiary. They all affect each other.
Which is why the article keeps coming back to the idea that the decisions that change the outcome are made ahead of time. Not the year you get the first distribution notice.
There's a line in the piece I love: the surprise is optional.
That's the whole series in four words. The rule isn't going anywhere. But whether it blindsides your family is completely up to you.
And for people who want to work through where they stand, David's guide includes a one-page RMD readiness checklist. You can print it, sit down with it, and get a real picture of what your situation looks like.
It's a good starting point before you sit down with an advisor, because you'll walk in knowing the questions to ask.
One thing worth saying as we close out: the specific numbers on what a given heir owes in a given year, how to calculate the annual distribution from an inherited IRA, whether a conversion makes sense in your particular tax bracket, those details are genuinely case-by-case. Our team at American Retirement Advisors works through exactly that kind of thing. If any part of today's conversation made you think about your own accounts, that's the call to make.
And bring your tax professional into it. The article specifically mentions advisors working alongside your tax professional, because these decisions live right at the intersection of investments and taxes. You want both people at the table.
Seven parts. We made it.
We really did. And I think this last one is the one that earns the whole series, because it's where the money actually goes.
Quick recap of what we covered today, and I'll keep it quick. The stretch IRA is gone for most heirs. It's a ten-year window now, and if the original owner was already in RMDs, there are annual withdrawals required in years one through nine with penalties starting in 2025. There are exceptions, a spouse, minor children, disabled beneficiaries, close-in-age heirs. Roth accounts pass more cleanly to heirs, and conversions before RMDs begin are a tool worth understanding. Beneficiary forms can override your will, so check them. And the charitable giving angle, which we talked through earlier, is really worth a conversation for anyone in that position where those distributions aren't needed for day-to-day life.
All of it in Ian Schaeffer's piece, which is the final installment of the series. Worth a read even if you've been listening along, because seeing it all written down in one place hits differently.
If you've been following this whole series and you're thinking it's time to actually sit down and map this out for your own family, you can start that conversation at American Retirement Advisors. The link is in Ian's article. Thank you so much for spending this time with us. The rule isn't going anywhere, and neither are we. Take care of yourselves.