The Role of IRAs in Estate Planning

23 November 2025

Estate planning can easily feel like a dense jungle of legal documents, tax rules, and big decisions. But there’s one tool that often gets overlooked or misunderstood — the humble IRA. Most people see it as just a retirement savings vehicle. You tuck away your money, let it grow tax-deferred (or tax-free if it’s a Roth), and then withdraw it when you’re older. Simple, right? But here’s the twist — Individual Retirement Accounts (IRAs) can play a huge role in estate planning.

If you’ve built up a sizeable nest egg in your IRA, it could be one of your most valuable assets when you pass it on. How you handle it in your estate plan can determine whether it becomes a gift or a tax headache for your beneficiaries.

Let’s unpack how IRAs fit into estate planning — what you need to know, what traps to avoid, and how to make this financial tool work smarter, not harder, for your legacy.

What Exactly Is an IRA?

Before we dive into estate planning strategies, let’s quickly review what an IRA really is. At its core, an Individual Retirement Account is a tax-advantaged savings account designed to help you prepare for retirement. There are several types of IRAs, but the two most common are:

- Traditional IRA: Contributions may be tax-deductible, and investments grow tax-deferred. You pay taxes when you withdraw the money.
- Roth IRA: Contributions are made with after-tax dollars, but the growth and withdrawals (in most cases) are completely tax-free.

There’s also the SEP IRA and SIMPLE IRA for the self-employed and small businesses, but for estate planning purposes, Traditional and Roth IRAs take the spotlight.

Why IRAs Matter in Estate Planning

So, why should you care about your IRA when planning your estate? Because when you pass away, your IRA doesn’t just disappear. It becomes part of your legacy.

You likely have other assets — your home, bank accounts, investments — and those usually get passed on through your will or a trust. But IRAs? They follow their own rules.

IRAs pass directly to the beneficiaries you’ve named on the account, regardless of what your will says. That’s right — if your IRA beneficiary designation says “my ex-spouse,” they’re getting that money unless you updated it.

That’s just the beginning. The tax implications, how quickly heirs must withdraw funds, and legal strategies you can use to maximize the IRA for future generations — all of that plays into smart estate planning.

The Power of Beneficiary Designations

Here’s one of the most overlooked aspects of IRAs: the beneficiary form is arguably more powerful than your will.

When you open an IRA, you’re asked to name a primary beneficiary — this person (or people) will receive the IRA when you die. You can also name contingent beneficiaries in case the primary one passes before you do.

This is critical. If you don’t name a beneficiary, or if your beneficiary predeceases you and you don’t have a backup, the IRA may go to your estate. That’s a paperwork nightmare and could create unwanted tax consequences.

Pro Tip: Keep Your Beneficiaries Updated

Life happens. You get married, divorced, have kids, or maybe you simply change your mind. Always update your IRA beneficiaries. It takes five minutes, but it can save your loved ones from years of headaches.

Stretch IRAs and the SECURE Act: What Changed?

For years, one of the most powerful estate planning moves was the “Stretch IRA.” It allowed non-spouse beneficiaries (usually children) to stretch required minimum distributions (RMDs) over their lifetimes. That meant small yearly withdrawals and decades of tax-deferred or tax-free growth.

But then came the SECURE Act, passed in late 2019. And it changed the game.

Under the new rules, most non-spouse beneficiaries must now empty the inherited IRA within 10 years of the original account holder’s death. That’s a big deal. It can mean higher taxes and less compounding growth.

Who’s Affected?

- If your spouse inherits your IRA, they can still treat it as their own and stretch out withdrawals over their lifetime.
- But your adult kids? They have 10 years to drain the account.
- Minor children, disabled or chronically ill individuals, and beneficiaries who are less than 10 years younger than you might get special exceptions.

In short, the “Stretch IRA” strategy is mostly gone for non-spouses — and that’s made estate planning with IRAs a bit trickier.

Roth IRAs: The Unsung Hero of Estate Planning

Roth IRAs can be estate planning gold. Why? Because your beneficiaries inherit the money tax-free (as long as certain conditions are met). And even better, they don’t have to take distributions in any specific year — they just have to empty the account within 10 years.

That offers flexibility and some serious tax savings.

Think about it: If your child inherits your Roth IRA, and they’re in their prime earning years, that tax-free money can be a game-changer. No additional tax burden, no added stress. Just a larger inheritance.

So if you’re in the right financial position and don’t need to rely heavily on your IRA in retirement, converting a Traditional IRA to a Roth could be a smart long-term move. Yes, you’ll pay taxes now, but your heirs might thank you later.

Naming a Trust as IRA Beneficiary: Good Idea or Not?

Here’s where things get a little complicated — and where people often make costly mistakes.

You might be thinking, “I’ll just name my trust as the IRA beneficiary. That way, I can control how and when the money is distributed.” Great idea in theory, but in practice? Not always so simple.

Trusts And IRAs: Proceed With Caution

Naming a trust as an IRA beneficiary can make sense if:

- You have minor children or loved ones who can’t manage money responsibly.
- You want to stagger distributions over time to avoid wasteful spending.
- You’re looking for greater asset protection or control after death.

But… trusts are subject to complex rules under the SECURE Act. If not structured properly, they might trigger immediate taxation or force the IRA to be distributed within 5 years (instead of the usual 10-year rule).

In short, yes — you can use a trust in your IRA estate plan. But work with an attorney who knows the ins and outs of “see-through” or “conduit” trusts. That’s not a DIY move.

Charitable Giving Through IRAs

Feeling charitable? IRAs offer a brilliant way to give and save on taxes at the same time.

If you're over 70½, you can make a Qualified Charitable Distribution (QCD) of up to $100,000 per year directly from your IRA to a qualified charity. That money isn’t considered taxable income, and it counts toward your RMD.

And in your estate plan, naming a charity as a beneficiary for your IRA can make a ton of sense. Since charities don’t pay income tax, they’ll receive the full value of the IRA — whereas an individual beneficiary might lose 20-35% to taxes.

It’s a win-win: You support a cause you care about and reduce your taxable estate.

Estate Taxes, IRAs, and the Big Picture

Let’s talk about taxes (ugh, I know). IRAs are subject to income tax when paid out to beneficiaries. If your estate is large enough, there could also be estate taxes on top of that. In some cases, nearly half the IRA could go to Uncle Sam.

What's the Threshold?

As of 2024, the federal estate tax exemption is $13.61 million per person — $27.22 million for a married couple. So most families won’t get hit with the federal estate tax. But several states have their own estate or inheritance taxes with much lower thresholds.

Bottom line? If your estate is sizable or you live in a state with estate taxes, your IRA could come under heavy fire. Planning ahead — using Roth conversions, trusts, QCDs, or even lifetime gifting — can help soften the impact.

Common IRA Estate Planning Mistakes to Avoid

Let’s recap with a few common missteps to steer clear of:

❌ Forgetting to Name or Update Beneficiaries

It's simple, but so many people forget. Check your beneficiary designations regularly.

❌ Naming Estate as Beneficiary

This often leads to probate delays and ugly tax consequences. Avoid it unless you have a very specific reason.

❌ Not Considering Tax Implications

Just leaving a big tax-deferred IRA to your kids might create an unexpected tax bomb. Think about their tax brackets, and consider Roth conversions or charitable strategies.

❌ DIYing Complex Trust Strategies

Trusts are powerful tools, but only if set up correctly. Work with a financial advisor and estate attorney.

Final Thoughts: Use Your IRA Wisely

When it comes to estate planning, your IRA isn’t just a retirement tool — it can be a powerful part of your legacy. Whether you're trying to pass on wealth tax-efficiently, protect your heirs from financial missteps, or support a charitable cause, your IRA offers a range of options.

And the best part? Most of this planning starts with checking one simple form: your beneficiary designation.

So don’t just set it and forget it. Take a few minutes today to ensure your IRA reflects your wishes. Your future self — and your family — will thank you.