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

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.

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.

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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 If that seasoning requirement is met, the entire inherited Roth can be withdrawn without generating a federal income tax bill.