Two heirs can inherit the same dollar amount in retirement accounts and face wildly different tax bills, and the reason comes down to which letter is on the account. Money pulled from an inherited traditional IRA is taxed as ordinary income, potentially thousands of dollars on a mid-sized account, while money pulled from an inherited Roth generally comes out entirely tax-free. For anyone weighing how to leave savings behind, that gap is one of the most consequential and least discussed features of the retirement system.
Why the Roth arrives tax-free and the traditional does not
The difference traces back to when the tax was paid. Contributions to a traditional IRA go in untaxed and grow tax-deferred, so the IRS collects when the money comes out — and for a beneficiary, those distributions are taxable as ordinary income. A large inherited traditional account withdrawn over a few years can push an heir into a higher bracket during their own working life.
A Roth is the mirror image. The original owner already paid tax on the contributions, so qualified withdrawals carry no further bill. As long as the account has been open at least five years, an heir’s distributions of both contributions and earnings come out free of federal income tax under the rules in IRS Publication 590-B. In practice nearly every inherited Roth clears that five-year mark, leaving the full balance tax-free to the beneficiary.
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The ten-year clock that applies to both
Tax treatment is only half the picture. Most non-spouse heirs who inherited after 2019 must empty the account within ten years of the original owner’s death, a timeline created by the SECURE Act. The rule applies to Roth and traditional accounts alike, so an heir cannot stretch either one across a lifetime the way beneficiaries once could.
What the ten-year window means, though, is very different for each. With a traditional IRA, every dollar taken out during that decade adds to taxable income, which makes the timing of withdrawals a real planning question. With a Roth, the clock forces the money out but never creates a tax, so a beneficiary can let it grow tax-free for nearly ten years and then withdraw the whole balance without owing a cent.
What it means for how you leave money behind
For the person doing the estate planning, the lesson is that a Roth is often the more valuable asset to pass on, dollar for dollar, precisely because it lands in an heir’s hands clean. Some retirees convert traditional balances to Roth accounts during low-income years, paying the tax themselves at their own rate rather than leaving it for children who may be in higher brackets.
Heirs, for their part, benefit from knowing which type they hold before touching it. Draining an inherited traditional IRA in a single high-earning year can trigger an avoidable tax hit, while an inherited Roth carries no such penalty for waiting. Understanding the distinction turns a confusing inheritance into a decision a beneficiary can actually control.
This article was researched and drafted with the assistance of artificial intelligence.
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