Heirs inheriting a $2 million traditional 401(k) face combined taxes ranging from $700,000 to $760,000 under the SECURE Act's mandatory 10-year withdrawal rule.
Converting $150,000 annually to Roth before RMDs costs roughly $300,000 at a rate of 22 to 24 percent, saving heirs up to $600,000 in taxes.
Roth conversions risk IRMAA surcharges above $106,000 for single filers; naming a charity as partial beneficiary eliminates tax on unconverted balances at 0%.
Are you ahead, or behind on retirement? SmartAsset's free tool can match you with a financial advisor in minutes to help you answer that today. Each advisor has been carefully vetted, and must act in your best interests. Don't waste another minute; learn more here.
A 68-year-old widower on the Clark Howard show recently laid out this problem: a paid-off house, $200,000 in a Roth, and $1.5 million in a 401(k), with the goal of leaving the balance to his kids. Scale that to $2 million in a traditional 401(k), two adult children in their peak earning years, and you have the single most expensive estate-planning mistake in the current tax code. The kids inherit the account and your unpaid tax bill, at their marginal rate, on a 10-year clock.
Since the SECURE Act, non-spouse heirs of a traditional 401(k) or IRA must empty the account within 10 years of the original owner's death. Every dollar of that $2 million comes out as ordinary income on the kids' Form 1040, stacked on top of whatever they already earn.
Assume two children, each inheriting $1 million and each already earning roughly $180,000. To drain the account evenly, each pulls about $100,000 a year for a decade. That extra income lands almost entirely in the 32% federal bracket, before state tax. At federal-plus-state combined rates, each child hands a meaningful share to tax authorities every year, adding up to hundreds of thousands per child over the decade. Combined across both heirs, that is a large slice out of the original inheritance.
_________________________________
Here's a question most people 5y from retirement can't answer: at your current savings rate, how much do you need, and how long will it actually last? A good advisor can put a date on that in a single meeting. SmartAsset's free quiz matches you with up to three fiduciary advisors serving your area, so you can get YOUR retirement number now (sponsor)
__________________________________________
Push the withdrawals into fewer years, say a lump sum in year 10 while a child is still a high earner, and the top bracket climbs toward 37%. The math gets worse.
Now run the alternative. Between age 68 and the start of required minimum distributions, the account owner has a window to convert traditional 401(k) dollars to Roth. If Social Security and a small pension put taxable income around $80,000, there is meaningful headroom inside the 22% and 24% brackets before hitting the next cliff.
Converting roughly $150,000 a year for eight years moves about $1.2 million into a Roth at a blended federal rate near 22% to 24%. Total conversion tax: on the order of $280,000 to $300,000. The remaining $800,000 stays traditional and still gets inherited under the 10-year rule, but on a much smaller base.
Compare the two paths on the same $2 million:
Do nothing. Heirs pay roughly $700,000 to $760,000 in combined federal and state income tax over their 10-year drawdown, depending on their brackets and state.
Convert aggressively before RMDs. You prepay roughly $280,000 to $320,000 at your own lower bracket. Heirs receive a Roth that comes out tax-free, plus a smaller traditional balance that generates far less taxable income.
The delta lands in the $400,000 to $600,000 range, larger if the heirs live in a high-tax state or inherit during their top earning decade.
Two things quietly wreck Roth conversion math. The first is IRMAA. Conversion income counts toward the two-year Medicare lookback, and crossing the first tier at roughly $106,000 for a single filer adds $70 or more per month in Part B and Part D surcharges. Stack conversions carelessly and a single year can trigger four figures in extra premiums.
The second is the reinvestment assumption. With the 10-year Treasury yielding 4.69%, the taxes you pay today have a real opportunity cost. Conversions still win when the heirs' bracket is meaningfully higher than yours, which is the norm for families with $2 million balances and working-age children.
One more wrinkle: the SECURE 2.0 rule now forcing catch-up contributions to Roth for anyone who earned more than $150,000 in 2025 is quietly building the same Roth-first logic into the accumulation phase. The IRS has telegraphed where this is going.
Ask each adult child, in writing, for their expected marginal federal bracket during their 40s and 50s. If it is 24% or higher, every dollar converted at your 22% to 24% rate is a win.
Model conversions that fill your current bracket to the dollar, stopping short of the next IRMAA tier. A fee-only advisor earns their keep here, because the personal savings rate has fallen to 3.9% and heirs are less likely than ever to have cash to cover an inherited tax bill.
Name a charity as partial beneficiary for the traditional portion you cannot convert in time. Qualified charitable distributions and charitable beneficiaries pull dollars out of the taxable estate at a 0% rate, which no Roth conversion can match.
Retirement planning doesn't have to feel overwhelming. The key is finding expert guidance, and SmartAsset's simple quiz makes it easier than ever for you to connect with a vetted financial advisor. Here's how:
Answer a Few Simple Questions.
Get Matched with Vetted Advisors
Why wait? Start building the retirement you've always dreamed of. Get started today! (sponsor)
Contact [email protected] for any questions or corrections.