A Roth conversion for heirs tends to help when your beneficiaries’ future tax rate meets or exceeds your current marginal rate, and not when it is lower.
Key Takeaways
- Under the SECURE Act 10-year rule, most non-spouse heirs must empty an inherited traditional IRA within ten years of the owner’s death.
- A non-spouse beneficiary cannot convert an inherited traditional IRA to Roth, so the conversion must happen during the original owner’s lifetime.
- The SECURE Act ended the lifetime stretch for most non-spouse beneficiaries beginning in 2020.
- In the article’s illustration, $100,000 converted at 22% incurs $22,000 of tax, versus $35,000 if an heir later withdraws at a 35% rate.
- Paying the conversion tax from a taxable account funds the full $100,000 in the Roth, while paying it from the IRA leaves about $76,000 inside.
- Recharacterization has been unavailable since 2018, so a conversion cannot be undone.
- For 2026, IRMAA surcharges begin above $109,000 (single) or $218,000 (joint) MAGI, and the 3.8% NIIT begins above $200,000 (single) or $250,000 (joint).
2026 Conversion Planning Thresholds
Figures as stated in this article for 2026 (IRS Rev. Proc. 2025-32; SECURE Act).
A Roth conversion for heirs is a move you make during your own lifetime, not one your beneficiaries can make later: you convert a traditional IRA to Roth so the account passes to your heirs income-tax-free. Whether it helps the family comes down to one comparison, your marginal tax rate on the conversion this year versus the rate your heirs will pay on the same dollars later under the SECURE Act 10-year rule.
A Roth conversion for heirs tends to make sense when your beneficiaries’ expected future tax rate meets or exceeds your current marginal rate, and leaving the IRA traditional tends to make sense when their rate will be lower. Under the SECURE Act 10-year rule, most non-spouse heirs must empty an inherited traditional IRA within a decade, often during peak-earning years. That rate comparison, not a slogan, should drive the go or no-go decision.
The real question: whose tax rate wins, yours now or your heirs’ later?
The decision reduces to one comparison: your all-in marginal rate on a conversion this year versus each heir’s marginal rate on the withdrawals they will be forced to take in the ten years after they inherit. When the heir’s rate is higher, moving money to Roth now shifts the eventual tax to a lower-rate payer. When their rate is lower, converting can cost the family more than doing nothing.
A Roth conversion is the lever, but the rate spread, not the conversion itself, decides whether the family comes out ahead.
Why the SECURE Act 10-year rule turned this into a bracket problem
The SECURE Act 10-year rule is why leaving a traditional IRA to your children is now a tax-rate problem rather than a quiet handoff. Before 2020, a non-spouse heir could stretch inherited IRA withdrawals across their own life expectancy. The law ended that stretch for most non-spouse beneficiaries, so the account generally must be emptied by the tenth year after death, compressing a lifetime of taxable income into a decade.
The two rates you actually need (your all-in conversion rate vs the heir’s stacked rate)
Two rates decide a Roth conversion for heirs, and both are marginal, not average. The first is your all-in conversion rate: your federal marginal rate plus any state income tax and the knock-on effects of a higher-income year, meaning IRMAA Medicare surcharges and the 3.8% Net Investment Income Tax on your other investment income. The second is the heir’s stacked rate: their salary plus the inherited distribution piled on top.
When converting for your kids can help (higher-bracket heirs)
Converting for your kids can help when they are higher-bracket heirs. The textbook case is a retiree in the 12% or 22% bracket with children in their peak-earning 32% or 35% years. Converting now pays tax at the parent’s lower rate so the heir can later withdraw a Roth account tax-free, sidestepping a decade of forced taxable distributions on top of a high salary. The wider the rate gap, the more converting is favored.
| Illustrative $100,000 conversion | Tax on the same dollars |
|---|---|
| Retiree converts now at 22% | $22,000 paid this year |
| Heir liquidates inherited traditional IRA at 35% | $35,000 paid later |
| Difference on the same $100,000 | $13,000 lower at the retiree’s rate (before compounding) |
This hypothetical is for illustration only. The family pays tax on identical dollars at 22% rather than 35%, and deciding how much to convert each year depends on where your bracket sits.
The stacking trap: inherited distributions pile on top of a W-2 salary
The stacking trap is that inherited traditional IRA distributions land on top of the heir’s W-2 income, not underneath it. Consider an illustrative single heir earning $150,000, inside the 24% bracket, who inherits a $600,000 traditional IRA and spreads it at $60,000 per year. That lifts taxable income to $210,000, into the 32% bracket that begins at $201,775. The same $600,000 in a qualified inherited Roth would generally come out at $0 federal tax.
The year-10 lump-sum cliff
The year-10 lump-sum cliff is the tax spike an heir hits by deferring an inherited traditional IRA to the last minute. Because the account must be emptied by the end of year ten, an heir who lets the balance ride concentrates one very large withdrawal into a single tax year, often pushing into the top brackets. An inherited Roth has no such penalty: it compounds untouched and is withdrawn tax-free in year ten.
When leaving the account traditional makes more sense (the counter-case)
Leaving the account traditional makes more sense in several situations that get far less attention than the arbitrage. Converting is not free, it is irreversible, and it can misfire. When any of the cases below apply, doing nothing may keep more in the family than converting for heirs.
- The heir will be in a lower bracket than you. An early-career child, a retired beneficiary, or a non-working surviving spouse may withdraw at 10% or 12%. Paying 22% or 24% now to spare them a 12% bill reverses the arbitrage.
- A charitable heir. Naming a charity as beneficiary of a pre-tax IRA, or making Qualified Charitable Distributions from an IRA (not a 401k) at age 70.5 and older, can erase the income tax on those dollars entirely.
- The conversion spikes your own costs. A large conversion can push you into a higher bracket, trip an IRMAA tier, or trigger the 3.8% NIIT on your other investment income. A partial conversion may then beat a full one.
- You may need the money for long-term care. Large deductible medical and long-term-care expenses late in life can offset traditional withdrawals at a low effective rate.
- Irreversibility. Recharacterization has been unavailable since 2018, so a conversion made in a high-rate year cannot be undone.
As an illustration, converting $100,000 at 24% costs $24,000, but an heir who would have withdrawn at 12% would owe about $12,000: converting there leaves the family roughly $12,000 worse off on those dollars.
Can your heirs just convert the inherited IRA themselves?
No. A non-spouse beneficiary cannot convert an inherited traditional IRA to a Roth, which is why a Roth conversion for heirs has to happen during the original owner’s lifetime. The IRS permits conversions only from an account you own, and an inherited traditional IRA held by a non-spouse is not eligible. Once you die, that window closes and your heirs face the forced taxable withdrawals.
The one exception runs through a surviving spouse, who can treat the IRA as their own and then convert on their own timeline. Non-spouse heirs (children, grandchildren, siblings) have no such path, so if you want your beneficiaries to receive tax-free dollars, the conversion and its tax bill are yours to handle now.
The real arbitrage engine: paying the conversion tax from a taxable account
The real arbitrage engine in a Roth conversion for heirs is paying the conversion tax from a taxable account rather than from the IRA being converted. Doing so shelters more money inside the tax-free wrapper and is what makes the arbitrage compound in the heir’s favor, yet it is rarely quantified elsewhere.
In an illustrative $100,000 conversion at 24%, paying the $24,000 tax from a taxable account funds the full $100,000 in the Roth, while paying it from the IRA leaves only about $76,000 inside: roughly $24,000 more sheltered, tax-free, for the heir. That withheld $24,000 never reaches the Roth and stops compounding, and under age 59 and a half it can itself be a taxable, penalized distribution.
Break-even and the hidden edge: 10 extra years of tax-free compounding (Vanguard BETR)
Break-even is the horizon at which a conversion pulls ahead of leaving the money traditional, and for a legacy conversion the heir’s ten-year window adds hidden runway. At a 6% return assumption, a conversion often takes roughly eight years to break even. Because the heir’s decade of tax-free compounding stacks on top of your own remaining years, the payoff improves even when the rate spread is modest.
Vanguard’s break-even tax rate (BETR) research suggests the added years of tax-free growth an inherited Roth enjoys can meaningfully lift the value delivered to heirs relative to a simple same-rate comparison. An inherited Roth has no annual required distribution in years one through nine, so it compounds untouched and is withdrawn tax-free in year ten, while an inherited traditional IRA forces taxable drawdowns. The Roth conversion break-even page walks through the timing.
A four-step framework: should you convert for your beneficiaries?
Deciding whether to convert for your beneficiaries turns into four estimates rather than a gut call. The framework forces the two rates into the open, then checks whether the arbitrage survives the cost of the tax and the time the money stays invested. Each step is educational and general, and a qualified tax professional can run the numbers for your specific facts.
- Estimate each heir’s marginal rate during the likely inheritance decade. A high earner in their 40s or 50s is the textbook higher-rate heir.
- Estimate your all-in conversion rate this year, including state tax, IRMAA, and NIIT effects, across any multi-year plan.
- Confirm the conversion tax can be paid from taxable money, not from the IRA itself. This is the engine of the arbitrage.
- Check the break-even horizon. Will the money stay invested long enough (your remaining years plus the heir’s ten) to clear break-even?
The fill-the-bracket ladder
The fill-the-bracket ladder converts only up to the top of your current bracket, or the edge of an IRMAA tier, each year instead of a lump sum. The low-income window after retiring but before Social Security and before age-73 required minimum distributions begin is often where this is more efficient. Sizing each year’s conversion to a breakpoint keeps the all-in rate down while still moving balance out of the traditional account over time.
2026 numbers you need: federal brackets, IRMAA tiers, and the 3.8% NIIT
Filling a bracket first requires finding it. The 2026 federal marginal brackets below (IRS Rev. Proc. 2025-32) let a retiree locate their rate and the breakpoint they can convert up to. The 2026 standard deduction is $16,100 (single) and $32,200 (joint), plus a $6,000 per-person senior deduction for those 65 and older through 2028 under OBBBA.
| 2026 rate | Single taxable income | Married filing jointly |
|---|---|---|
| 10% | Up to $12,400 | Up to $24,800 |
| 12% | $12,400 to $50,400 | $24,800 to $100,800 |
| 22% | $50,400 to $105,700 | $100,800 to $211,400 |
| 24% | $105,700 to $201,775 | $211,400 to $403,550 |
| 32% | $201,775 to $256,225 | $403,550 to $512,450 |
| 35% | $256,225 to $640,600 | $512,450 to $768,700 |
| 37% | Over $640,600 | Over $768,700 |
The 10% through 37% structure was made permanent under the 2025 budget law (OBBBA, P.L. 119-21). Two knock-on costs of a high-income conversion year sit outside this table and often decide the sizing:
| 2026 knock-on cost | Where it starts | Why it matters in a conversion year |
|---|---|---|
| IRMAA Medicare surcharge (Part B base $202.90 per month) | MAGI above $109,000 (single) or $218,000 (joint) | Two-year lookback, so a 2026 conversion can raise 2028 premiums; crossing a tier by $1 triggers the full surcharge |
| Net Investment Income Tax, 3.8% | MAGI above $200,000 (single) or $250,000 (joint) | The conversion is not itself net investment income, but the income it adds can pull your interest, dividends, and gains into the 3.8% surtax |
The NIIT thresholds are statutory and not indexed for inflation, and the last conversion year that cannot affect a future Medicare premium through the lookback is age 62. See the NIIT 2026 overview for how the surtax stacks, and mind the December 31 2026 conversion deadline, since a conversion cannot be undone.
Work with Q3 Advisors
Q3 Advisors is a registered investment adviser focused on retirement tax planning. This page is educational and is not advice; consult a qualified professional.
Frequently asked questions
Can you convert an inherited IRA to a Roth?
No, a non-spouse beneficiary cannot convert an inherited traditional IRA to a Roth. The IRS allows conversions only from an account you own, and an inherited traditional IRA held by a non-spouse does not qualify. The one path is a surviving spouse, who can treat the IRA as their own and then convert. For everyone else, the conversion must happen during the original owner’s lifetime.
Is a Roth conversion a good way to leave heirs tax-free money?
It can be, when your heirs’ expected future tax rate is at or above your current marginal rate. Converting during life pays the tax at your rate so the account passes income-tax-free and your heirs skip a decade of forced taxable distributions under the 10-year rule. When their rate will be lower than yours, leaving the account traditional often keeps more in the family. It is a rate comparison, not a guarantee.
Do beneficiaries pay taxes on an inherited Roth IRA?
Generally no. Qualified distributions from an inherited Roth IRA are federal-income-tax-free, provided the original owner had held a Roth for at least five years. Non-spouse heirs must still empty the account within ten years of death, but there is no annual required distribution during that window and no tax on withdrawal, so the balance can compound untouched and come out at $0 federal tax in year ten.
What is the 10-year rule for inherited IRAs?
The SECURE Act 10-year rule requires most non-spouse beneficiaries to empty an inherited IRA by December 31 of the tenth year after the owner’s death. It replaced the old lifetime stretch. For an inherited traditional IRA those withdrawals are taxable and often land in peak-earning years; for an inherited Roth they are tax-free. A surviving spouse and certain eligible designated beneficiaries are exempt from the ten-year limit.
Should I do a Roth conversion if I have no heirs?
With no heirs, the legacy argument for converting falls away, and the decision rests on your own lifetime rates instead. Converting may still help if you expect your own future rate to rise, for example once required minimum distributions begin at age 73, or if you want to reduce IRMAA exposure later. If you plan to give to charity, Qualified Charitable Distributions from a traditional IRA at age 70.5 and older can be more efficient than converting.
Do my kids pay taxes on an inherited traditional IRA?
Yes. Withdrawals from an inherited traditional IRA are taxed as ordinary income to your children at their own rates, and there is no step-up in basis. Under the 10-year rule they must empty the account within a decade, and because those distributions stack on top of their salaries, the dollars are often taxed at a higher marginal rate than they would face on their paycheck alone. Converting during your life shifts that tax to your rate instead.
