Affluent Investors Convert 401(k)s to Roth IRAs as SECURE Act's 10-Year Rule Raises Heir Taxes
Updated
Updated · 24/7 Wall St. · Oct 9
Affluent Investors Convert 401(k)s to Roth IRAs as SECURE Act's 10-Year Rule Raises Heir Taxes
3 articles · Updated · 24/7 Wall St. · Oct 9
Summary
Affluent investors over 60 are increasingly converting traditional 401(k) balances to Roth IRAs or spending them down because inherited 401(k)s now saddle most heirs with faster, higher tax bills.
The 2020 SECURE Act requires most non-spouse beneficiaries to empty inherited accounts within 10 years, and final IRS rules can also force annual RMDs during that period, with missed withdrawals triggering a 25% excise tax.
That compressed timetable often hits children in peak earning years: in 2026, single filers reach the 32% bracket at $201,776 of taxable income and 35% at $256,226, making inherited distributions costlier than parents' retirement withdrawals.
Roth accounts and taxable brokerage accounts pass more cleanly—Roth withdrawals are generally tax-free, while taxable assets get a step-up in basis—so advisers favor partial conversions before RMDs begin at age 73.
The strategy still has limits: large conversions can raise Medicare IRMAA premiums and tax up to 85% of Social Security benefits, while families with lower-bracket heirs or charitable bequests may keep traditional 401(k) assets instead.