Estate Planning with an IRA: Ensuring Your Legacy

16 September 2025

Let’s be honest—no one wakes up excited to talk about estate planning. It’s not exactly a thrilling brunch topic unless you're a financial planner (and even then...). But here's the thing: if you've worked hard, saved diligently, and built up a nice nest egg—especially through an IRA—making sure that money ends up where you want it to matter, really does. Estate planning with an IRA isn’t just for the wealthy; it’s for anyone who wants to leave a legacy, not a tax headache.

So grab that cup of coffee, sit back, and let’s walk through how to make your IRA work smarter when it comes to passing on your financial legacy.

What Is Estate Planning Anyway?

Estate planning is basically the adulting version of setting your financial house in order. It’s the plan you make for your stuff after you're gone—your money, your property, even your grandma’s favorite tea set. And when we bring an IRA (Individual Retirement Account) into the mix, things get a bit more interesting… and more complex.

Why? Because IRAs have unique rules. And the IRS isn’t exactly known for making things simple, right?

Why IRAs Play a Big Role in Estate Planning

Here’s the deal: an IRA is often one of the biggest assets that people leave to their heirs. Unlike your regular savings account, an IRA comes with special tax advantages that can either be a bonus or a burden to your beneficiaries—depending on how well it’s planned out.

In simple terms, if you don’t plan wisely, Uncle Sam might end up getting a big piece of your pie. Not cool.

Traditional IRA vs. Roth IRA: What’s the Difference?

Before we go deeper, let's get one thing straight—there’s a big difference between a Traditional IRA and a Roth IRA when it comes to estate planning.

Traditional IRA

- Contributions are made pre-tax
- Withdrawals in retirement are taxed
- Beneficiaries will owe income tax on distributions

Roth IRA

- Contributions are made after-tax
- Withdrawals are tax-free
- Beneficiaries can get those distributions tax-free (if the account meets certain age requirements)

So if you leave behind a Roth IRA, your heirs could get the big win—tax-free money. Score!

Naming Beneficiaries: It’s More Important Than You Think

Okay, this part’s big. Seriously, it can make or break your entire estate plan. Designating the right beneficiary for your IRA isn’t a set-it-and-forget-it task.

Think about it. Life happens—marriages, divorces, new grandkids. If you don't keep your beneficiary designations up to date, your IRA might end up in the wrong hands. (Yes, even that ex-spouse you haven’t talked to in years.)

📝 Pro Tip: Always—yes, always—review your IRA beneficiary forms after major life changes.

The Stretch IRA… R.I.P.

Once upon a time, there was a magical thing called the "Stretch IRA." It allowed non-spouse beneficiaries to stretch withdrawals (and the tax hit) over their lifetime. But then came the SECURE Act of 2019, and that magic spell was broken.

Now, most non-spouse beneficiaries have to empty the account within 10 years. That’s a pretty big tax bomb if the IRA is worth a lot.

But don’t panic—there are still smart ways to handle this. Let’s dive into them.

Smart Strategies for Estate Planning with an IRA

1. Convert to a Roth IRA Early

Yep, it might sting a bit now tax-wise, but if you convert some or all of your Traditional IRA to a Roth while you're still alive, your heirs will thank you. Instead of inheriting a giant tax problem, they’ll get money they can withdraw tax-free.

Like ripping off a Band-Aid—it hurts less in the long run.

2. Use Trusts (But Do It Carefully)

You’ve probably heard of people setting up trusts to control how money is passed down. Trusts can be super useful, especially if you want to protect heirs from themselves (think: spendthrift children or minors).

But when it comes to IRAs, trusts can get tricky. If not set up correctly, you could lose the tax benefits an IRA offers. Always work with a pro if you’re considering this route.

3. Stagger Inheritances With Multiple Beneficiaries

Want to pass your IRA down to more than one person? You can. In fact, naming multiple beneficiaries can even create a bit of flexibility.

Each beneficiary can take distributions on a schedule that fits their own needs—within that 10-year window, of course.

4. Consider Charity

Feeling generous? If you’re charitably inclined, donating your IRA (or part of it) to a qualified nonprofit can be a powerful move. It reduces estate taxes and supports a cause you care about.

And here’s a cool bonus—charities don’t pay income tax. So 100% of your IRA donation goes straight to work.

Common IRA Estate Planning Mistakes (And How to Avoid Them)

Let’s save you from some headaches, shall we? Here are a few of the most common blunders:

- Not naming a beneficiary at all. Without one, your IRA might go to your estate—and that’s just begging for probate court drama.
- Naming the wrong beneficiary. Your intentions don’t mean much if the paperwork says otherwise.
- Forgetting minor children can’t inherit directly. They’ll need a guardian or a trust until they’re of legal age.
- Not considering taxes. Even if your heirs are emotionally ready for the inheritance, they might not be financially prepared for the tax bill.

Spouse vs. Non-Spouse Beneficiaries: Know the Difference

Your surviving spouse has more options than anyone else. They can actually roll your IRA into their own, and continue tax-deferred growth. Pretty sweet, right?

Non-spouse beneficiaries, though, don't get the same treatment. They have to either take it as an inherited IRA (with that 10-year rule) or—if they’re not strategic—blow a chunk of it on taxes.

Updates to Watch: SECURE Act 2.0

If Congress loves anything, it's adding a sequel. The SECURE Act 2.0, passed in 2022, introduced more changes. The Required Minimum Distribution (RMD) age was pushed to 73 (and eventually to 75). That means you’ve got more time to plan IRA distributions and consider Roth conversions.

Translation? You’ve got more flexibility than ever to be smart about your legacy.

How to Talk to Your Family About Your Plan

Let’s be real—it can feel awkward to talk about money, especially when it involves your death. But guess what? Your family is going to find out one way or another. Wouldn’t you rather they be prepared?

Here’s how to make it less weird:
- Make it part of a broader conversation about your values.
- Frame it as your way of caring about their future.
- Be honest about your goals—and your concerns.

They may not thank you now, but they’ll definitely thank you later.

Final Thoughts: Your Legacy, Your Rules

Look, estate planning with an IRA might not be the most glamorous topic—but it can be one of the most impactful things you ever do.

This is about more than money. It’s about taking care of the people and causes you love. It’s about making sure what you’ve built lives on the way you intended.

So whether you’re just getting started or updating your plan after years of investing, take the time to make smart moves. Future-you (and your future heirs) will appreciate it.

And remember—legacy is more than just assets. It’s the story you leave behind.