A Guide to Roth IRAs & Estate Taxes

Heirs who inherit a Roth IRA often wonder how the account can be used and what rules apply to withdrawals. Beneficiaries generally have several options, such as withdrawing funds in a lump sum, taking distributions over a 10-year period, or, in some cases, stretching withdrawals over their life expectancy. While Roth IRAs are tax-free for the original owner, heirs may face specific distribution requirements depending on whether they are a spouse, non-spouse, or another type of beneficiary.

A financial advisor can help you understand your options when inheriting a Roth IRA and create a plan for managing distributions in a way that supports your goals. Connect with an advisor today.

Leaving Retirement Accounts to Heirs

With any investment portfolio, the original owner can designate heirs who will inherit the accounts after their death. Although the mechanics of inheriting a retirement account differ from receiving a standard portfolio of stocks and bonds, a tax-advantaged account such as a Roth IRA follows the same process when heirs are named.

The IRS requires that inherited retirement accounts be liquidated within a specific period, typically 10 years. This rule prevents the assets from being passed down indefinitely without tax consequences, ensuring that distributions eventually occur.

If retirement accounts are passed to beneficiaries through a will rather than by naming them directly on the account, the funds may be liquidated during probate. Once liquidated, heirs are responsible for paying taxes on the money they receive.

Roth IRA Inheritance Rules

One advantage of a Roth IRA is that there are no required minimum distributions (RMDs) during the original owner’s lifetime. Because contributions are made with after-tax dollars, the funds can be withdrawn at any point without further tax obligations, provided certain conditions are met. This feature also makes the Roth IRA a useful tool for transferring wealth to beneficiaries.

There are specific rules for inheriting Roth IRAs depending on whether the beneficiary is a spouse, another individual or falls into a special category.

Rules for Spouses

When a person inherits a Roth IRA from their deceased spouse, the IRS offers four ways to handle it:

1. Spousal Transfer

Provided you are the sole beneficiary, you may transfer the assets into a new IRA or your own existing IRA. The funds can be accessed whenever needed, though earnings are typically subject to tax unless the account holder is at least 59 ½ and the five-year rule has been satisfied.

2. Inherited Roth IRA Using the Life Expectancy Method

The assets can be moved into an inherited Roth IRA established in your name. Required minimum distributions will apply, but they can be delayed until the later of two dates: the year after the account holder’s death or the year the decedent would have reached their required beginning date.

3. Inherited Roth IRA With the 10-Year Rule

You may transfer the assets into an inherited Roth IRA held in your name. The funds may stay in the account until December 31 of the 10th year following the account holder’s death, when the entire balance must be distributed. If the five-year holding requirement is satisfied, withdrawals during the 10-year period are tax-free. If not, only the earnings portion is taxable. Any assets left in the account continue to grow tax-free until the end of the 10-year window.

4. One-Time Lump Sum Withdrawal

All assets are distributed to you and immediately available. If the Roth IRA has been open for fewer than five years at the time of the account holder’s death, any earnings are subject to taxation.

Other Beneficiaries

Certain non-spouse beneficiaries who qualify as eligible designated beneficiaries must liquidate the fund within 10 years of receiving it. There are no RMDs during this time, so you can let the account continue to grow for the full 10 years before pulling all of your money out at once. Under certain conditions, you can take distributions over your lifetime.

People who are not eligible designated beneficiaries must take all the assets by the 10th year after the death of the decedent, provided that the account owner died in 2020 or later. If the person died earlier, then you may open an inherited IRA and stretch distributions over your lifetime.

You will pay no taxes on this money so long as the original account owner created it more than five years before their death. If they created the Roth IRA less than five years before their death, you will owe ordinary income taxes on the account’s growth as applicable.

Carve-Outs

Certain beneficiaries are exempt from the 10-year rule. Minor children of the account owner have a suspended term. They do not have to make any withdrawals while they are children but must withdraw the money from this account within 10 years of turning 18 (or 21 in some cases).

The 10-year rule does not apply at all to heirs who have some form of legal disability, nor does it apply to anyone who was born within 10 years of the deceased. These carve-outs don’t prevent the IRS from accomplishing its main goal of preventing the transfer of tax-free wealth from generation to generation over and over again.

Naming Beneficiaries to Avoid a Tax Event

SmartAsset: Roth IRA and Estate Tax Guide

A Roth IRA can serve as a valuable tool for avoiding capital gains and income taxes. Contributions are made with after-tax dollars, allowing the funds to grow tax-free, and taxes are typically owed only on the money originally deposited. However, depending on the structure of an estate plan, a Roth IRA may still trigger estate taxes. Once assets enter an estate, they become subject to potential taxation.

When assets are passed through a will or probate, estate taxes may apply. Retirement accounts, including Roth IRAs, can be transferred through a will in two main ways:

Proceeds of the Roth IRA: The executor sells the account, pays any applicable taxes and distributes the remaining funds to heirs as directed in the will.
The account itself: The heir takes over the Roth IRA portfolio and may liquidate its holdings, typically subject to the 10-year distribution rule.

Now, very few households are subject to the estate tax. In 2025, the federal estate and gift tax exemption is set at $13.99 million for individuals and $27.98 million for married couples. That limit will increase in 2026 under the One Big Beautiful Bill Act, rising to $15 million for individuals and $30 million for married couples.

Estates below the exemption owe no tax, while estates above the threshold are taxed on the excess. For instance, if someone dies in 2025 leaving $14.5 million to heirs, the estate would owe taxes on $510,000.

To avoid probate-related issues, Roth IRA owners can designate beneficiaries directly on the account. Doing so allows the portfolio to pass automatically to the named beneficiaries rather than through probate, bypassing related expenses and delays. Beneficiaries gain control of the account immediately upon the owner’s death, regardless of inheritance laws or will provisions, because they already hold a recognized interest in the account.

Bottom Line

The most simplest way to transfer a Roth IRA is by naming beneficiaries on the account itself. This prevents the portfolio from being tied up in probate and allows heirs a minimum of 10 years to withdraw the funds.

Tips for Tax Planning

A financial advisor can potentially help you put an estate plan together to protect the future of your loved ones. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
The federal estate tax isn’t the only way that taxes can bite into your will. A few states have inheritance tax laws on the books as well that you should be aware of.