Drawing From the Roth First May Leave Heirs With a Six-Figure Tax Bill

Many retirees instinctively protect their Roth IRA, reasoning that tax-free growth and tax-free distributions make it the ideal asset to preserve for beneficiaries. The appeal is understandable: a Roth passes to heirs without generating a federal income tax bill, while traditional IRA withdrawals are taxed as ordinary income. As a result, plenty of retirees drain taxable brokerage accounts and traditional IRAs first, keeping the Roth untouched for the next generation. That approach, however, often backfires under current inheritance rules.

The SECURE Act, effective in 2020, fundamentally changed the math. A traditional IRA inherited by an adult child must now be fully distributed within ten years, and every withdrawal is taxed as ordinary income on the beneficiary’s personal return. A properly seasoned Roth IRA, by contrast, can be inherited without triggering a federal income tax obligation.

How the Ten-Year Rule Changed the Strategy

Prior to 2020, non-spouse beneficiaries could stretch inherited IRA distributions over their own life expectancy, keeping annual withdrawals modest and the tax burden manageable. The SECURE Act eliminated that option for most adult children, replacing it with a decade-long deadline. The account must be fully emptied by the end of the tenth year following the owner’s death, and traditional IRA distributions are added to the beneficiary’s existing income for the year.

Roth Accounts Follow Different Rules

Inherited Roth IRAs are treated far more favorably, though with important caveats. As financial educator Suze Orman has noted, the rules differ significantly between spouses and non-spouse beneficiaries. For children, the critical requirement is the five-year rule: the Roth must have been established and funded at least five years before the owner’s death. If that seasoning condition is satisfied, the entire inherited Roth can be withdrawn over the ten-year window with no federal income tax due.

Where a $120,000 Tax Bill Comes From

Consider a retiree who dies with a $500,000 traditional IRA and two adult children as equal beneficiaries. Each child inherits $250,000 and, for simplicity, takes it in equal $25,000 installments over the ten-year distribution window. Assume each child already earns $100,000 as a single filer — a common profile for a working professional in their forties or fifties.

Under the 2025 single-filer brackets, taxable income between $48,476 and $103,350 is taxed at 22%, and income between $103,351 and $197,300 is taxed at 24%. Layering $25,000 of inherited IRA distributions on top of $100,000 in wages pushes nearly all of each withdrawal into the 24% bracket. Across two children and a full decade of withdrawals, the cumulative federal tax burden becomes substantial. A lump-sum withdrawal in year ten, or beneficiaries already sitting in the 32% bracket, would push the total even higher.

That same $500,000 held in a properly seasoned Roth IRA would transfer to heirs with no federal income tax due, regardless of how the withdrawals are timed within the ten-year window.

A Withdrawal Sequence That Typically Works Better

Withdrawal order matters because retirees generally pass through a low-income window between leaving the workforce and starting required minimum distributions. Traditional IRA dollars withdrawn during those years often fill only the 10% and 12% brackets, which for a single filer in 2025 cover taxable income up to $48,475. Roth conversions executed in the same window shift money out of the taxable bucket at those low rates and into an account that heirs can inherit tax-free.

Spending the Roth first reverses this logic entirely. It leaves the traditional IRA intact to keep growing, which enlarges both the eventual required distributions and the inherited balance — all of which are taxed at ordinary income rates. The quiet years between the last paycheck and the first required minimum distribution are typically the least expensive window to move money in the opposite direction.

Three Checks to Review Before Adjusting Your Plan

Three verification steps can address most of the exposure. First, confirm that the Roth has been open for at least five years, since the seasoning rule determines whether heirs can withdraw earnings tax-free. Second, evaluate the gap years between retirement and age 73 as conversion opportunities, particularly in light of evolving guidance on how shifting retirement timelines affect Roth conversion strategy. Third, review beneficiary designations on every account, because the form on file at the custodian takes precedence over instructions in a will.

The retiree described in this story followed a widely held assumption: protect tax-free accounts for the next generation. The 2019 legislative change altered the underlying math, and the account that many retirees still prioritize saving may be the one best suited to be spent first.

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