IRA and Retirement Account Estate Planning: Roth Conversions, Beneficiary Designations, and the 10-Year Rule

For many HNW families, retirement accounts are 20–40% of total net worth — yet they are often the worst-planned asset in the estate. IRAs carry a hidden liability that brokerage accounts and real estate don't: every dollar your heirs withdraw is taxed as ordinary income. No step-up. No exclusion. A $2M traditional IRA can become a $1.2M inheritance after federal and state income tax at top rates. Here's how to plan around it.

Why IRAs are different: the income-in-respect-of-a-decedent (IRD) trap

Money inside a traditional IRA was never subject to income tax when it went in (if deductible) and has never been taxed as it grew. The IRS views this as deferred income — income in respect of a decedent (IRD) under IRC §691. When a beneficiary withdraws money, they owe ordinary income tax on every dollar, regardless of how long they hold the account or what the tax law says about capital gains rates.

Compare three $1M assets at death:

Assumes heirs in 37% federal + ~5% state income tax bracket. IRD deduction under IRC §691(c) partially offsets, but effect is limited for most beneficiaries.

The traditional IRA is also included in the gross estate for federal estate tax purposes — so families above the $15M exemption face estate tax on top of the income tax liability. IRAs can be taxed twice: once in the estate (40% estate tax rate), then again as the beneficiary withdraws (37%+ income tax rate). Proper planning significantly reduces this double-tax exposure.

The Roth conversion strategy: pay tax now so your heirs don't

A Roth conversion moves money from a traditional IRA into a Roth IRA. You pay ordinary income tax on the converted amount in the year of conversion — but the money then grows tax-free inside the Roth and passes to heirs as a tax-free inheritance. This is one of the most powerful estate planning tools available to HNW families with large IRA balances.

When a Roth conversion is an especially good estate planning move

• Your heirs will be in higher tax brackets than you are now. If you're 68 years old and between careers, your current effective rate may be lower than your heirs' peak earning rates. The conversion locks in a lower tax rate on that wealth transfer.
• You have assets outside the IRA to pay the tax. The conversion is most efficient when you pay the tax bill from non-IRA assets — you're effectively moving value into the IRA that otherwise would have gone to the IRS. Paying conversion tax from the IRA itself reduces the benefit.
• Your estate is above the federal $15M exemption. The conversion both reduces the taxable estate (by converting pre-tax dollars to after-tax Roth dollars) and converts the remaining balance into a tax-free asset for heirs.
• You're in a temporarily low-income year. The window between retirement and Social Security / RMDs is often the lowest-income period — ideal for conversions at compressed tax rates.
• Market is down. Converting a depressed account means paying tax on fewer dollars — and the recovery happens inside the tax-free Roth.

The conversion math: a $3M IRA example

Consider a 65-year-old with a $3M traditional IRA, $8M in other assets, two adult children in the 37% bracket. Current income: $300K/year (below RMD age, no Social Security yet).

• Converting $300K/year fills up the 35% federal bracket without pushing into 37%
• Over 10 years, approximately $3M is converted — the entire IRA — at roughly 37% blended federal rate (~$1.1M total tax paid from outside assets)
• The Roth IRA at death: $3M+ (plus 10 years of growth, tax-free) → heirs inherit $0 income-tax liability
• Vs. no conversion: heirs inherit a $3M traditional IRA subject to the 10-year rule; withdrawals at 37% + state income tax → $1.7M–$1.9M after-tax value
• Net estate planning benefit: $1M–$1.3M more for heirs, plus the reduced estate tax exposure from paying conversion tax during life

No Roth 401(k) lifetime RMDs — an underused planning opportunity

Starting in 2024, Roth 401(k) and Roth TSP accounts are no longer subject to required minimum distributions during the original owner's lifetime — matching the treatment of Roth IRAs.³ Before this change, Roth 401(k) owners had to take RMDs (though they were not taxed). Now, leaving a Roth 401(k) untouched is a viable strategy — or rolling it to a Roth IRA provides the same benefit with additional investment flexibility.

Beneficiary designations: the most common — and most costly — mistake

An IRA beneficiary designation supersedes your will. It doesn't matter what your revocable trust says, what your estate attorney drafted, or what your will directs — the IRA goes to whoever is named as beneficiary on the custodian's form. This creates predictable failure modes:

The six most expensive beneficiary designation mistakes

1. No contingent beneficiary named. If your primary beneficiary predeceases you and there is no contingent beneficiary, the IRA goes to your estate — triggering the non-individual beneficiary rules (5-year rule instead of 10-year rule) and potentially probate. Name primary and contingent beneficiaries for every account.
2. Naming your estate as beneficiary. An estate is not an individual or a qualifying trust. Heirs inherit through probate, lose the 10-year stretch available to individual beneficiaries, and often cannot roll the IRA over. Never name your estate as an IRA beneficiary.
3. Stale designations after divorce or death. Many families discover that an ex-spouse or a deceased sibling is still the named beneficiary. Courts have split on whether state law automatic-revocation-on-divorce statutes apply to federally-governed IRAs. The answer: update your beneficiary forms immediately after any life event. Don't assume state law protects you.
4. Naming a minor child directly. A minor cannot legally control an inherited IRA. A court-appointed guardian is required until they reach majority — then the 10-year clock runs from the minor's 18th birthday (later in some states), and they receive the full balance with no accountability for how it's spent.
5. Equal distribution when heirs have different tax situations. Leaving a traditional IRA equally to a child in the 37% bracket and a charitable remainder trust (at 0% tax) destroys value. Optimize: leave the IRA (highest income-tax-cost asset) to charities or lower-bracket beneficiaries; leave Roth accounts, stepped-up brokerage accounts, and real estate to higher-bracket heirs.
6. "Per stirpes" vs. "per capita" — not reading the form. "Per stirpes" means if a primary beneficiary predeceases you, their share passes to their children (your grandchildren). "Per capita" means the remaining beneficiaries divide the deceased beneficiary's share equally. Most estate plans intend per stirpes — but many default IRA forms say per capita. Read and confirm what the custodian's form actually does.

The SECURE 2.0 10-year rule: what it means for your heirs

Under the SECURE Act (2019) and subsequent regulations finalized in T.D. 10001 (July 2024), most non-spouse beneficiaries who inherit an IRA must fully distribute the account within 10 years of the original owner's death.⁴ The old "stretch IRA" — where heirs could take tiny distributions over their own lifetime — is gone for most beneficiaries.

Who is subject to the 10-year rule

The 10-year rule applies to non-eligible designated beneficiaries: most adult children, siblings, other relatives, and non-spouse individuals. They must empty the account by December 31 of the 10th year following the owner's death. No minimum annual distribution was originally required — a beneficiary could wait until year 10 and take the full balance.

The annual RMD twist (T.D. 10001)

The IRS finalized regulations in July 2024 that added an important wrinkle: if the original owner had already begun taking required minimum distributions (i.e., was past their Required Beginning Date), the non-EDB beneficiary must take annual RMDs based on their own life expectancy during years 1–9, AND fully empty the account by year 10.⁴

This creates a forced income acceleration that can push heirs into higher brackets during their prime earning years. Example: a 45-year-old child inheriting a $2M traditional IRA from a parent who died at 78 must take annual RMDs of roughly $50,000–$80,000/year for 9 years, then the entire remaining balance in year 10. If the heir earns $400K/year in salary, this additional income is taxed entirely at 37% federal.

Eligible designated beneficiaries: who can stretch beyond 10 years

Five categories of beneficiaries can still take distributions over their own lifetime instead of the 10-year rule:

• Surviving spouse — can treat the inherited IRA as their own, defer distributions indefinitely, and roll it into their own IRA
• Disabled beneficiary (meets IRS disability definition under IRC §72(m)(7))
• Chronically ill beneficiary
• Individual not more than 10 years younger than the decedent (e.g., a sibling close in age)
• Minor child of the decedent — but only until they reach the age of majority, after which the 10-year rule kicks in

Naming a trust as IRA beneficiary: when it makes sense — and the traps

Some estate plans route IRA assets into a trust for reasons of control, asset protection, or special needs planning. This is sometimes necessary — but naming a trust as an IRA beneficiary has significant risks if not drafted correctly.

The see-through trust requirements

For a trust to receive "look-through" (see-through) treatment — where the IRS looks through the trust to the underlying beneficiaries and applies the 10-year rule as if those individuals inherited directly — four requirements must be met:⁵

1. The trust must be valid under state law
2. The trust must be irrevocable (or become irrevocable) at the IRA owner's death
3. The beneficiaries of the trust must be identifiable from the trust document
4. The trust documentation must be provided to the IRA custodian by October 31 of the year following the owner's death

If any of these requirements fail, the IRA is treated as having no designated beneficiary — and the 5-year rule (if death before RBD) or life-expectancy rule based on the deceased owner's remaining life expectancy (if death after RBD) applies. Both outcomes are typically worse than the 10-year rule.

Conduit trust vs. accumulation trust

A conduit trust passes all distributions from the IRA immediately through to the beneficiary. This is the simpler structure, and the beneficiary is treated as the designated beneficiary for RMD purposes. A accumulation trust permits distributions to be held inside the trust rather than passed through — but all trust beneficiaries (including remainder beneficiaries) must be individuals, or the trust fails the see-through test.

The primary use cases for naming a trust as IRA beneficiary: (1) a beneficiary with special needs who cannot receive assets outright, (2) a spendthrift beneficiary you want to protect from themselves, (3) controlling the timing of distributions from a minor's inherited IRA. In most other situations, naming individuals directly is simpler and more flexible.

Charitable strategies: making IRAs your most tax-efficient bequest

Because traditional IRAs carry the highest income-tax burden of any asset class, they are the single most efficient asset to leave to charity — and the least efficient to leave to family. Charities pay no income tax on IRA distributions; high-bracket children pay 37%+.

Strategy 1: Name a charity as partial IRA beneficiary

Designate a charity as partial beneficiary of a traditional IRA (e.g., 50% to charity, 50% to children). The charity's share is received income-tax-free. The children's share remains subject to the 10-year rule and ordinary income tax. Alternatively, leave the entire traditional IRA to charity and redirect Roth IRAs, brokerage accounts, and real estate (all with better income-tax profiles) to heirs. This simple reallocation — same dollars, different buckets — can increase the total after-tax family wealth by hundreds of thousands of dollars.

Strategy 2: Qualified charitable distributions (QCDs) — give while alive

Once you reach age 70½, you can make Qualified Charitable Distributions (QCDs) directly from a traditional IRA to a qualifying charity — up to $111,000 per year in 2026.¹ The QCD counts toward your RMD for the year but is excluded from your taxable income. Unlike a charitable deduction (which requires itemizing), the QCD exclusion applies regardless of whether you itemize.

For HNW families who don't need RMD income for living expenses, a QCD strategy can eliminate income taxes on IRA distributions for years — reducing the IRA balance (and the income-tax liability that will eventually hit heirs) while satisfying charitable intent.

Strategy 3: Charitable Remainder Trust (CRT) as IRA beneficiary

A CRT named as IRA beneficiary receives the inherited IRA income-tax-free. The CRT then pays an income stream to family members for a term of years (or their lifetimes), with the remainder going to charity. This can effectively "restretch" distributions beyond the 10-year rule while partially preserving charitable deductions. See: Charitable Remainder Trust Guide for CRT mechanics and the CRAT calculator.

IRAs and the federal estate tax

The full value of a traditional IRA is included in your gross estate for federal estate tax purposes — the deferred income tax liability inside the IRA does not reduce the estate tax valuation. A $3M IRA is a $3M asset in your estate, and if your estate exceeds the $15M exemption,⁶ the excess is taxed at 40%.

There is a partial offset: IRC §691(c) allows heirs to claim an income tax deduction for the estate tax paid on IRD items. But this deduction only applies to the extent the estate actually paid estate tax — estates under the exemption get no §691(c) deduction. And for large estates, the deduction only partially offsets the combined bite.

RMDs and the estate plan: coordinate, don't neglect

Most HNW families in their 70s and 80s are taking RMDs from their traditional IRAs. Each RMD is taxable income — and if not spent, it accumulates in the taxable estate, potentially creating additional estate tax exposure. Three planning moves that address this:

• QCDs to satisfy RMDs charitably. Up to $111,000/year can go directly to charity, satisfying the RMD with no taxable income generated.
• Reinvest RMDs in Roth conversions. Take the RMD (required), pay the tax, but use the net proceeds to fund a Roth IRA conversion of a separate IRA if you have multiple accounts. Shifts future growth to a tax-free bucket.
• Roth 401(k) rollover during retirement to avoid lifetime RMDs. Roll a Roth 401(k) to a Roth IRA — this eliminates the lifetime RMD requirement that applied pre-2024 to Roth workplace accounts.

Action checklist: IRA estate planning for HNW families

1. Pull every IRA beneficiary designation form — traditional, Roth, rollover, inherited. Verify primary and contingent beneficiaries. Confirm per stirpes election if that's your intent.
2. Calculate your estimated IRA balance at life expectancy. Model what the balance will be in 10, 15, and 20 years after RMDs and growth. What income-tax liability does this represent for heirs?
3. Model Roth conversion scenarios. Identify years with below-normal income (before Social Security, before RMD age, down-market years) where conversions are cost-effective. Determine how much to convert annually to stay within your target bracket.
4. Asset-location your bequests. Match your least tax-efficient asset (traditional IRA) to your most tax-exempt beneficiary (charity or lower-bracket heir). Match your most stepped-up assets to highest-bracket heirs.
5. Review whether a trust as beneficiary is necessary. If you have a minor, disabled, or spendthrift beneficiary, confirm whether a see-through trust is drafted correctly and whether conduit or accumulation treatment is appropriate.
6. Coordinate with your RMD schedule. Know your RBD (April 1 of the year after you turn 73 or 75), plan QCDs, and confirm that your heirs understand the 10-year rule and annual RMD requirements under T.D. 10001.

Sources

1. IRS — 2026 Retirement Plan Limits (IRS Notice 2025-67) (IRA contribution limit $7,500 under 50 / $8,600 age 50+; QCD annual limit $111,000 for 2026)
2. IRS — Retirement Topics: IRA Contribution Limits (Roth IRA income phaseout for MFJ: $242,000–$252,000 for 2026; no income limit on Roth conversions)
3. IRS Notice 2025-67 (SECURE 2.0 §107 RMD age 73 for born 1951–1959 / 75 for born 1960+; SECURE 2.0 §325 eliminated Roth 401(k)/TSP lifetime RMDs starting 2024)
4. IRS — Required Minimum Distributions for IRA Beneficiaries (10-year rule for non-eligible designated beneficiaries; T.D. 10001 annual RMD requirement when decedent was past Required Beginning Date, effective for distributions in 2025+)
5. IRS Publication 590-B (2025) — Distributions from Individual Retirement Arrangements (see-through trust requirements; conduit vs. accumulation trust treatment; eligible designated beneficiary categories under IRC §401(a)(9)(E))
6. IRS — Tax Year 2026 Inflation Adjustments (OBBBA) (federal estate and gift tax exemption $15,000,000 for 2026; OBBBA, signed July 4, 2025)

Values verified as of April 2026: QCD limit $111,000 (IRS 2026); IRA contribution limit $7,500/$8,600 (IRS Notice 2025-67); Roth phaseout MFJ $242,000–$252,000 (IRS 2026); RMD age 73/75 (SECURE 2.0 §107); 10-year rule annual RMD requirement per T.D. 10001 (IRS, July 2024); estate exemption $15M (OBBBA, IRS 2026 adjustments).