How to Leave a Tax-Free Legacy to Your Heirs Using Roth Conversions

By Stephen - info Pascoe • 04/21/2025

How to Leave a Tax-Free Legacy to Your Heirs Using Roth Conversions

Introduction: The Hidden Tax Trap of Inherited Wealth

You’ve spent your life building wealth, making smart investment decisions, and ensuring financial security for your family. But have you considered the tax burden your heirs might face when they inherit your retirement accounts?

Many retirees assume their children or beneficiaries will simply inherit their assets tax-free—but that’s rarely the case. Thanks to the SECURE Act, most non-spouse beneficiaries must withdraw the entire balance of an inherited IRA or 401(k) within 10 years—often triggering huge tax bills.

The solution? Roth conversions.

In this guide, we’ll cover:
✅ How inherited retirement accounts are taxed.
✅ Why Roth conversions are a powerful tax-free inheritance tool.
✅ How to convert strategically to protect your heirs from unnecessary taxes.

Let’s ensure your legacy isn’t lost to taxes.

How Inherited Retirement Accounts Are Taxed

Most retirement accounts—like 401(k)s, Traditional IRAs, and 403(b)s—are tax-deferred, meaning taxes were never paid on the contributions or growth. When heirs inherit these accounts, they’re responsible for paying ordinary income tax on withdrawals.

The SECURE Act’s 10-Year Rule

Before 2020, beneficiaries could "stretch" withdrawals over their lifetime.

Now, most non-spouse heirs must withdraw the entire balance within 10 years—often pushing them into higher tax brackets.

If your heirs are in their peak earning years, this could mean losing 30-40%+ of their inheritance to taxes.

🚨 Example:

You pass away leaving a $2M Traditional IRA to your children.

They must withdraw $200,000 per year for 10 years—pushing them into higher tax brackets and potentially increasing their Medicare costs if they’re retired.

This is why Roth conversions can be a game-changer for legacy planning.

Why Roth Conversions Help Your Heirs Keep More of Your Wealth

A Roth IRA is one of the best assets you can leave to your heirs because:

✔ Tax-Free Withdrawals: Heirs do NOT owe taxes on Roth distributions.
✔ No RMDs for You: Unlike Traditional IRAs, Roth IRAs don’t require Required Minimum Distributions (RMDs) during your lifetime.
✔ More Growth, Less Tax: Your Roth IRA can continue to grow tax-free for heirs during the 10-year withdrawal window.
✔ Reduces Heirs' Tax Burden: Heirs won’t be forced to take large taxable distributions in their highest-earning years.

How to Convert Your IRA to a Roth the Right Way

Converting too much too fast could push you into higher tax brackets—so it’s essential to use a strategic Roth conversion plan.

Step 1: Convert in Lower Tax Years

🚀 Best time to convert:

Between retirement and RMD age (before 73).

Years when your taxable income is low (e.g., after retiring but before claiming Social Security).

If tax laws are expected to change (e.g., before 2026, when tax brackets may rise).

💡 Example Strategy:

Convert just enough each year to stay in a lower tax bracket (22% or 24% instead of jumping to 32%+).

Avoid Medicare IRMAA surcharges by keeping taxable income below key thresholds.

Step 2: Use Tax Brackets to Your Advantage

Here’s how much taxable income you can have before hitting the next tax bracket (2025 estimates for married filers):

Tax Bracket

Married Filing Jointly

Single Filers

12%

Up to $94,300

Up to $47,150

22%

$94,301 - $201,050

$47,151 - $100,525

24%

$201,051 - $383,900

$100,526 - $191,950

32%

$383,901 - $487,450

$191,951 - $243,700

35%

$487,451 - $731,200

$243,701 - $609,350

37%

Over $731,200

Over $609,350

🚀 Smart Roth Conversion Strategy:
✔ Convert up to the top of the 24% bracket while keeping income below 32%.
✔ Avoid conversions that push you into the 35% or 37% bracket unless necessary.

Step 3: Pay Taxes from a Non-Retirement Account

When converting to a Roth, you must pay taxes on the converted amount.

💡 Pro Tip:
✔ Always pay Roth conversion taxes with cash or a taxable investment account—not from the IRA itself.
✔ This ensures your full Roth balance stays invested and grows tax-free.

🚨 What NOT to do:
❌ Don’t convert so much that you need to use IRA funds to pay the taxes.
❌ This reduces long-term growth potential and can cause a bigger tax burden.

Step 4: Use a Multi-Year Conversion Plan

Instead of converting everything at once (which could push you into a high tax bracket), spread conversions over multiple years.

🚀 Example:

If you have $1M in a Traditional IRA, convert $100,000-$200,000 per year over 5-10 years to stay in a reasonable tax bracket.

This reduces taxable income spikes and helps manage long-term tax liability.

Who Benefits Most from Roth Conversions?

✔ High-net-worth retirees with large tax-deferred accounts ($1M+).
✔ Anyone retiring before RMDs begin (age 73).
✔ Retirees who expect to be in a higher tax bracket later.
✔ Those who want to leave a tax-free inheritance for their children.

Final Thoughts: A Tax-Free Legacy Starts with a Roth Strategy

Roth conversions are one of the most powerful estate planning tools for retirees who want to:
✅ Reduce tax burdens for heirs.
✅ Avoid forced taxable withdrawals under the SECURE Act.
✅ Leave a tax-free legacy for future generations.

The key is timing and strategic conversions—not overpaying taxes upfront while ensuring heirs receive maximum tax-free benefits.

📥 Download Your Free Roth Conversion Guide Here Download Here

📅 Schedule a Consultation to See If a Roth Conversion Is Right for You Click Here

Securities offered through Van Clemens & Co., member FINRA/SIPC. Advisory services offered through Van Clemens Wealth Management, a registered investment advisor. Van Clemens & Co. and Van Clemens Wealth Management are separate entities from Inspire Financial Services. CA License: 4234803.

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