A couple’s decision to defer Roth conversions leaves children facing higher tax rates on inherited IRAs within a 10-year window.
A retired couple holding $900,000 in traditional IRAs is opting against Roth conversions, deferring taxes at 22-24 percent rates but passing the liability to heirs at 32-35 percent. The SECURE Act’s 10-year distribution rule accelerates taxable withdrawals during heirs’ peak earning years.
Current tax brackets for married filers place the 22 percent rate between $100,801 and $211,400, while the 24 percent bracket extends to $403,550. With a $32,200 standard deduction, retirees can convert IRA funds annually before required minimum distributions begin at age 73, avoiding higher future rates.
Heirs inheriting IRAs must distribute the full balance within a decade, compressing taxable income into years when they may face top marginal rates. Financial advisors recommend annual conversions up to the 22 or 24 percent bracket ceiling to mitigate the impact.