Your Kids Are High Earners. That Is Exactly Why Roth Conversions Still Matter — Even Without Estate Tax Fears

The headline question usually runs like this: my adult kids make good money. Should I do a Roth conversion so they aren't crushed by taxes on my inheritance?

The short answer is yes — but probably not for the reason most articles leading you here would claim. The estate tax is no longer the driver. The real issue is income tax, the 10-year forced liquidation that heirs face, and the gap between your current tax bracket and theirs. That's the cash-flow engine we need to inspect.

The estate tax is off the table for almost everyone

Last year, the One Big Beautiful Bill Act (signed July 4, 2025) permanently raised the federal estate tax exemption to $15 million per person, $30 million for married couples, and eliminated the sunset provision that was going to drop it back to roughly $7 million in 2026. Unless you're looking at a portfolio north of that range, estate tax is a non-factor.

But here's what most planning articles don't lead with: even when estate tax is zero, the income tax on inherited retirement accounts can still be enormous. A traditional IRA passed to your children becomes their taxable income. Every dollar they withdraw is taxed at their marginal rate. That is the real wealth drain — not the estate tax, but the income tax compressed into a decade.

The 10-year rule is the hidden tax bomb

Under the SECURE Act, most non-spouse beneficiaries — that means your adult kids — must fully withdraw an inherited IRA within 10 years of your death. If you had already reached RMD age (73 for those born 1951–1959, 75 for those born after 1959), they also have to take annual required minimum distributions during years one through nine, with the account emptied by the end of year ten.

Here's the mechanical problem: those distributions are all taxed as ordinary income. If your children are in the 35% or 37% bracket, a large inherited traditional IRA gets taxed at the top marginal rate — and there's no way to spread it out over decades like the old "stretch IRA" rules allowed. The 10-year window compresses what used to be a lifetime of manageable distributions into a decade of potentially massive taxable income.

A Roth IRA inherited by your children works differently. The distributions are still subject to the 10-year zero-out rule, but there are no annual RMD requirements for non-spouse Roth beneficiaries, and every dollar they withdraw is tax-free. They can let the account compound untouched until year ten, then take it all out without a bill. That is a structural advantage, not a marginal one.

The tax arbitrage is between your bracket and theirs

A Roth conversion moves pre-tax retirement funds into a Roth IRA and triggers ordinary income tax on the converted amount in the year you do it. There's no annual limit and no income cap. It's irreversible.

The math is simple tax arbitrage: you pay the tax now at your marginal rate, your heirs withdraw it tax-free later at whatever high rate they happen to be in. If you're in the 22% bracket and they're in the 35% bracket, every dollar you convert saves them 13 cents that would otherwise go to income tax. Over a large IRA balance stretched across a 10-year window, that adds up.

The best time to do this conversion is what some advisors call the "retirement gap" — the period between when you stop working and when RMDs kick in. During those years, you may have no earned income, Social Security not yet started, and deductions still available. That's often the lowest tax bracket of your entire life. For a married couple with little other income in 2026, the standard deduction alone is $32,200, and the 12% bracket extends to $100,800 of taxable income. Converting within that range means you're paying a blended rate around 10% — far below what your children would pay on the same dollars.

Watch the side effects

A Roth conversion increases your taxable income, and that triggers real costs if you're not careful.

Medicare surcharges are the most common one. IRMAA (Income-Related Monthly Adjustment Amount) adds surcharges to your Medicare Part B and Part D premiums if your modified adjusted gross income from two years prior exceeds certain thresholds. For married couples filing jointly in 2026, that first cliff is $218,000. Crossing it by a dollar costs $95.70 per month — about $1,148 a year — in combined Part B and Part D surcharges. The system is a cliff, not a gradient, so sizing conversions to stay just under that threshold can save thousands annually.

The senior deduction phaseout is a newer trap. The One Big Beautiful Bill Act introduced a $6,000 above-the-line deduction per person ($12,000 married) for taxpayers 65 and older, available through 2028. It phases out at 6% of MAGI above $150,000 for joint filers, which effectively adds roughly 1.3–1.4 percentage points to your marginal rate between $150,000 and $350,000 of MAGI. That reduces the "free" conversion space in that range.

Paying the tax from the wrong place is the most costly mechanical mistake. If you convert $100,000 and take $22,000 from the conversion itself to pay the tax, only $78,000 goes into the Roth to grow tax-free. That $22,000 shortfall compounds into roughly $119,000 in lost tax-free growth over 25 years at a 7% return. Pay the conversion tax from a taxable brokerage account or savings instead. The Roth gets the full amount to compound, and your heirs inherit the larger balance.

When it doesn't make sense

If part of your estate plan includes leaving your traditional IRA to a charity, converting that portion to a Roth is wasteful. You'd pay income tax today on money that a tax-exempt recipient wouldn't owe any tax on anyway. Similarly, if your total retirement account balance is well below what you and your spouse will need in retirement, converting to Roth may be unnecessary — your heirs won't face large forced distributions because there won't be a large balance to distribute.

State taxes matter, too. In states with high income taxes like California (9.3%–13.3%), the effective cost of a conversion is higher, which changes the breakeven math. Run the numbers with your actual state rate included.

What to actually do

The income question for your heirs is straightforward. Will they be hit with a decade of forced taxable withdrawals at their top marginal rate? Or will they inherit something they can take out tax-free on their own schedule? A Roth conversion, done deliberately and sized correctly, tilts that outcome in their favor.

Start by mapping your current income, your deductions, and the gap between where you are and the next bracket cliff — especially the IRMAA threshold if you're on Medicare. Convert enough to fill your lower brackets without triggering surcharges. Repeat it each year in the retirement gap. Pay the tax from outside the IRA. And think of it not as a tax dodge but as locking in a certainty: when your kids inherit that account, the cash that hits their bank account stays there.

That's the only guaranteed return. The rest is just hoping the market cooperates on a day you don't need it.