Most people spend years building their retirement savings with one goal in mind: making sure their family is taken care of.
But when it comes to IRAs, what happens after you’re gone often doesn’t get nearly as much attention as it should.
Not because people don’t care, but because the rules aren’t obvious, and the consequences usually don’t show up until it’s too late to fix them.
Let’s walk through a situation we see more often than you might think.
A Familiar Retirement Picture
Mark and Susan are both 68 and comfortably retired.
They live in Iowa, enjoy a steady routine, and don’t worry much about money day to day. Between a pension, Social Security, and savings they’ve built over time, their lifestyle is well covered.
Over the years, they also accumulated about $3.2 million in a traditional IRA. It’s money they don’t expect to fully spend and they’ve always assumed it would eventually go to their two children.
Their kids, however, are in very different financial situations.
- Their son runs a successful consulting business in New Jersey and earns well into the high six figures.
- Their daughter works in senior leadership at a tech company in California, with a strong salary and equity compensation.
Mark and Susan figured they had done the hard part. They saved. They were responsible. They left something meaningful behind.
What they hadn’t thought through was how that money would be taxed once their kids received it.
Where the Plan Starts to Break Down
Under the SECURE Act, most non-spouse beneficiaries must empty an inherited IRA within 10 years.
That means Mark and Susan’s children wouldn’t be able to stretch withdrawals slowly over a lifetime. Instead, they’d be required to pull out roughly $320,000 per year, whether they needed the money or not.
And those withdrawals wouldn’t be happening in a vacuum.
They’d be stacked on top of already high incomes — in two of the highest-tax states in the country.
- New Jersey adds up to 10.75% in state income tax
- California tops out at 13.3%
When you combine that with federal taxes, a large portion of each withdrawal goes straight to Uncle Sam and the state.
Over 10 years, it’s possible that 40-50% of the inherited IRA could disappear to taxes before the money ever has a chance to do much for the family.
That’s not a planning failure. It’s a planning blind spot.
The Part Many Families Miss
Here’s the turning point in this story.
Mark and Susan don’t pay taxes the same way their kids do.
They live in Iowa, where they do pay state income tax, but at a much lower rate than their children face in California or New Jersey. And just as important, their overall income in retirement puts them in moderate federal tax brackets, not the highest ones.
In other words, while paying taxes in retirement isn’t ideal, they can pay those taxes far more efficiently than their children could.
That difference reframes the entire conversation.
Instead of focusing on how to leave money behind, the question became:
Who should pay the tax — us, or our kids?
Please Note: Iowa does not tax most retirement income for people who are at least 55, disabled, or qualifying survivors; Social Security is also fully exempt regardless of age. To Learn More Visit the Iowa Department of Revenue – Retirement Income Guidance page.
A More Thoughtful Approach
Working with their advisor, and since they qualify Mark and Susan can put together a long-term Roth conversion strategy.
Rather than converting everything at once, they can gradually move portions of their traditional IRA into a Roth over several years. The goal wasn’t to eliminate taxes; it was to pay them intentionally, at lower rates, and on their terms.
And by managing the timing and size of the conversions, they stayed within reasonable federal tax brackets and the lower Iowa state taxes. The result?
Their children would no longer inherit a large taxable IRA that had to be drained quickly. Instead, they’d inherit Roth accounts, where growth and withdrawals are tax-free.
And since the kids didn’t need the money right away, they could let it sit and continue compounding, without the pressure of large, taxable distributions.
Same Savings. Very Different Outcome.
Nothing about Mark and Susan’s savings changed.
What changed was how and when the taxes were paid.
Without planning:
- Heirs inherit a taxable IRA
- Required withdrawals push them into top tax brackets
- A significant share of the money goes to taxes
With planning:
- Taxes are paid earlier, at lower rates
- Heirs receive tax-free assets
- More of the money stays in the family
That’s not about being aggressive or clever. It’s about being deliberate.
Why This Matters More Than Ever
This type of planning is especially important for retirees who:
- Live in low- or no-tax states
- Have comfortable retirement income but aren’t in the top brackets
- Have children who are high earners or live in high-tax states
In those situations, ignoring beneficiary tax planning can quietly undo years of careful saving.
The Bottom Line
A good retirement plan doesn’t stop when paychecks do. It considers:
- Who will inherit your accounts
- What tax environment they live in
- And whether today’s decisions can make life easier for them later
For many families, Roth conversions aren’t just a retirement strategy; they’re a way to protect what you’ve worked a lifetime to build.
The content provided herein is based on our interpretation of the SECURE Act and is not intended to be legal advice or provide a tax opinion. This document is a summary only and not meant to represent all provisions within the SECURE Act.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Hypothetical examples are not representative of any specific investment. Your results may vary.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.