He Spent Down the Roth First to ‘Save’ the IRA for His Kids. He Left Them a $120,000 Tax Bill Instead of a Tax-Free Account

He Spent Down the Roth First to ‘Save’ the IRA for His Kids. He Left Them a $120,000 Tax Bill Instead of a Tax-Free Account

David Beren

Sat, September 12, 2026 at 9:09 PM GMT+3 5 min read

Quick Read

• Spending down a Roth first leaves heirs with a traditional IRA they must fully withdraw within 10 years, taxed as ordinary income.

• A $500,000 traditional IRA split between two children earning $100,000 each pushes distributions into the 24% bracket, creating a $120,000 tax bill.

• Retirees should use the low-income gap between retirement and age 73 to do Roth conversions at 10% to 12% rates instead of spending the Roth.

• Read More: Learn 7 ways to generate income with a $1,000,000+ portfolio (sponsor)

A common instinct among retirees is to protect the Roth IRA at all costs. Roth money grows tax-free, distributions in retirement are tax-free, and the account can pass to beneficiaries without generating an income tax bill. So many retirees spend down the Roth first, or leave it entirely untouched while draining taxable brokerage accounts and traditional IRAs to cover living costs. The logic feels sound: give the kids the clean, tax-free money.

Under the rules that took effect with the SECURE Act, that sequence often produces the opposite of the intended result. A traditional IRA inherited by an adult child must now be fully distributed within a decade, and every dollar comes out as ordinary income on the child's return. A Roth would have passed with no federal income tax.

How the 10-Year Rule Rewrote the Playbook

Before 2020, a non-spouse beneficiary could "stretch" an inherited IRA across their own life expectancy, keeping annual withdrawals small and the tax hit manageable. The SECURE Act replaced that with a 10-year window for most adult children. The account has to be emptied by the end of the tenth year after the original owner's death, and traditional IRA distributions land on top of whatever the beneficiary is already earning.

Learn 7 Ways To Generate Income With A $1,000,000+ Portfolio

If you've saved over $1,000,000, this guide is for you. The last thing you want in retirement is to run out of money, you want your money to generate lasting income while you enjoy your life.

Now you can learn the strategies wealthy retirees use to fund their retirement with The Definitive Guide to Retirement Income from Fisher Investments. Download the guide today! (sponsor)

Roth accounts are treated differently, and as financial educator Suze Orman put it on her podcast, "when it comes to an inherited Roth IRA, the rules are very, very different if you are a spouse, a sole beneficiary of that Roth IRA versus a non-spouse, like kids and things like that." The key wrinkle for children is the five-year rule: the money has to have been in the Roth long enough "before your kids can take it out tax free." If that seasoning requirement is met, the entire inherited Roth can be withdrawn without generating a federal income tax bill.

Where the $120,000 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 slices over the 10-year window. Assume each child already earns $100,000 as a single filer, which is a common profile for a working professional in their 40s or 50s.

Under the 2025 single-filer brackets, income from $48,476 to $103,350 is taxed at 22%, and income from $103,351 to $197,300 is taxed at 24%. Layering $25,000 of inherited IRA income on top of $100,000 in wages pushes almost all of the distribution into the 24% bracket. Across two children and 10 years of withdrawals, the added federal tax becomes a meaningful multi-year burden. Change the assumption to a lump-sum withdrawal in year 10, or beneficiaries already earning inside the 32% bracket, and the number goes higher.

The same $500,000 held in a seasoned Roth IRA would have transferred with no federal income tax due on the withdrawals, regardless of how the children timed them within the 10-year window.

Sequence That Usually Works Better

Withdrawal order matters because retirees typically move through a low-income window between the end of paid work and the start of required minimum distributions. Traditional IRA dollars pulled in 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 done in the same window move money out of the taxable bucket at those low rates and into an account the heirs can inherit tax-free.

Spending the Roth first inverts that logic. It leaves the traditional IRA to grow, which enlarges the eventual required distributions and the eventual inherited balance, both of which are taxed at ordinary rates. The quiet years between the last paycheck and the first required withdrawal are usually the cheapest time to shift money the other direction, which is the whole subject of our free guide to the Roth window.

What to Review Before the Next Rebalance

The good news is that three checks address most of the damage. First, confirm the Roth has been open at least five years, since the seasoning rule determines whether heirs can pull earnings out tax-free. Second, look at the gap years between retirement and age 73 as conversion opportunities, especially given fresh coverage of how "soft retirement" changes 2026 Roth conversion strategy. Third, verify beneficiary designations on every account, because the form on file at the custodian overrides the will.

The retiree in the headline followed a common intuition: preserve tax-free money for the next generation. The 2019 rule change altered the math, and the account many retirees still save for last is often the one better suited to be spent first.

Learn 7 Ways To Generate Income With A $1,000,000+ Portfolio

If you've saved over $1,000,000, this guide is for you. The last thing you want in retirement is to run out of money, you want your money to generate lasting income while you enjoy your life.

Now you can learn the strategies wealthy retirees use to fund their retirement with The Definitive Guide to Retirement Income from Fisher Investments. Download the guide today! (sponsor)

Contact editorial@247wallst.com for any questions or corrections.