Under the SECURE Act, most non-spouse beneficiaries who inherit an IRA after December 31, 2019 must fully distribute the inherited account within 10 years of the original owner's death. The exceptions are narrow -- surviving spouses, minor children of the deceased until they reach majority, disabled or chronically ill beneficiaries, and beneficiaries not more than 10 years younger than the deceased. For most adult children inheriting from a parent, none of these exceptions apply. For beneficiaries inheriting from an owner who had already begun RMDs, the IRS's 2022 regulations also require annual distributions during the 10-year period -- a mandatory schedule on top of the full distribution deadline.

The inherited traditional IRA creates a tax problem precisely because it arrives at the worst possible time -- the beneficiary's peak earning years, when their own income is already high. The additional inherited IRA income stacks on top of salary at the beneficiary's marginal rate with no ability to control timing once mandatory annual distributions apply. A $700,000 inherited traditional IRA distributed over 10 years to a beneficiary earning $95,000 annually pushes combined income to $150,000-$165,000 -- well into the 24% bracket and potentially touching 32% in heavier distribution years.

The inherited Roth IRA is subject to the same 10-year distribution requirement but with fundamentally different tax treatment. Distributions from an inherited Roth are income-tax-free. The beneficiary can take distributions in any pattern over the 10-year window without triggering any federal or Arizona income tax. Every dollar the original owner converted from pre-tax to Roth before death is a dollar the heir receives completely tax-free -- versus ordinary income at 24-32% on the full balance of an inherited traditional IRA.

The surviving spouse is an eligible designated beneficiary and is not subject to the 10-year rule. A surviving spouse can roll the inherited IRA into their own IRA and manage it as an original owner -- their own RMD schedule at 73, full flexibility, no forced distribution deadline. The estate plan should name the surviving spouse as primary IRA beneficiary on all accounts. Naming adult children as primary beneficiaries instead -- a common simplification -- triggers the 10-year rule immediately on the first death and forfeits potentially 20-25 years of additional tax deferral that the surviving spouse rollover would have preserved.

The Qualified Charitable Distribution reduces the pre-tax IRA balance that will eventually be subject to the 10-year rule for non-charitable heirs. Every dollar transferred to charity at age 70½ or older is a dollar that does not pass to adult children as taxable inherited income. For a household already making charitable donations with after-tax dollars, redirecting those gifts through the QCD accomplishes the same charitable goal at zero marginal tax cost -- while simultaneously shrinking the inherited IRA tax bill the heirs will face.

The inherited IRA tax bill is almost always larger than expected when modeled explicitly. On a $1.4M pre-tax IRA split between two adult children in their peak earning years, the combined federal tax at blended 24-32% rates is $336,000-$448,000. Arizona state tax adds another $35,000. Between 26% and 34% of the inheritance goes to taxes -- not because the estate is poorly managed, but because of the account type and the forced distribution timeline imposed by the SECURE Act.

A Roth conversion program that reduces the pre-tax balance from $2.45M to $1.2-1.4M over six years of systematic conversions at 22-24% changes the inherited account picture fundamentally. The converted balance compounds tax-free in Roth and passes to heirs with zero income tax owed on any distribution. The remaining pre-tax balance is smaller, the heirs' tax bill is proportionally smaller, and the total wealth transferred to the next generation is meaningfully larger than under the unmanaged default.

The Roth conversion strategy and the estate planning goal are the same decision viewed from two angles. Every dollar converted at 22-24% during the low-income window between retirement and the first RMD is a dollar the heirs receive tax-free rather than as ordinary income at 24-32% during their peak earning years. The conversion is a tax rate transfer -- from the heirs' higher rate to the original owner's lower current rate. The total tax burden on the wealth is reduced at the most efficient point in the comparison.

• Naming adult children as primary IRA beneficiaries instead of the surviving spouse, triggering the 10-year rule immediately on the first death and forfeiting the surviving spouse rollover benefit.
• Not modeling the inherited IRA tax bill for specific named beneficiaries at their actual income levels, leaving the estate planning motivation for Roth conversions unquantified and abstract.
• Misunderstanding the inherited Roth 10-year rule as a tax event -- distributions from an inherited Roth are income-tax-free regardless of the 10-year distribution requirement.
• Naming a trust as primary IRA beneficiary without confirming it qualifies as a see-through trust, which can inadvertently trigger the 10-year rule and eliminate the spousal rollover benefit.
• Delaying Roth conversions until the pre-tax balance is too large and the 22-24% window too narrow to meaningfully reduce the inherited account before the 10-year rule applies to heirs.