Retirement planning and estate planning are frequently treated as separate disciplines managed by separate professionals, addressed at different times in life, and reviewed on different schedules. This separation is a planning mistake. The decisions made in retirement, when to convert to Roth, which accounts to draw from, how to title assets, what survivor benefits to elect, have direct and often permanent consequences for estate outcomes. And estate planning decisions, beneficiary designations, trust structures, gifting strategies, have direct consequences for retirement income.
The intersection of retirement and estate planning is where some of the most expensive and most preventable planning errors occur. A 401(k) beneficiary designation filed twenty years ago and never updated can send assets to an ex-spouse, a deceased parent, or the estate itself, triggering probate and accelerating tax. A Roth conversion done without considering the impact on heirs may be suboptimal compared to a strategy that leaves assets for heirs to convert. A trust structure that made sense when created may be incompatible with current law or current family circumstances.
This paper covers the primary intersections between retirement and estate planning: beneficiary designations and their hierarchy, the inherited IRA rules under SECURE 2.0, step-up in basis and the taxable account as an estate planning tool, Roth assets as the most efficient legacy vehicle, and the coordination required between financial advisors and estate attorneys to make these pieces work together.
Two major legal changes have significantly altered the estate planning landscape for retirement account holders in recent years. The SECURE Act of 2019 eliminated the stretch IRA for most non-spouse beneficiaries, requiring most inherited IRAs to be depleted within ten years of the original owner's death. SECURE 2.0, enacted in 2022, pushed the required minimum distribution starting age and made additional changes to inherited account rules.
These changes have fundamentally altered the calculus for leaving retirement accounts to heirs. Under the old stretch rules, a beneficiary could take small annual distributions from an inherited IRA over their lifetime, deferring taxes for decades. Under the current ten-year rule, a beneficiary who inherits a large traditional IRA must deplete it within ten years, and if they are in their peak earning years when they inherit, they may pay substantially higher taxes on those distributions than the original account owner would have paid.
The wealth transfer wave accompanying Baby Boomer retirement makes these issues particularly timely. Trillions of dollars in retirement account assets will transfer to the next generation over the coming decades. The tax efficiency of those transfers will be determined largely by decisions made before the account owner's death.
Beneficiary designations on retirement accounts, life insurance policies, and annuities override wills. This is one of the most misunderstood aspects of estate law and one of the most consequential. A will that says all assets go to the surviving spouse means nothing if the 401(k) beneficiary designation names a former spouse, a deceased parent, or the estate.
The hierarchy of beneficiary types matters significantly under current law. A spouse who is named as the primary beneficiary of a retirement account has special options unavailable to other beneficiaries, including the ability to roll the account into their own IRA and delay distributions to their own age 73. An adult child who inherits the same account is subject to the ten-year depletion rule. The identity of the beneficiary determines the tax treatment of the inheritance.
Contingent beneficiaries matter too. If the primary beneficiary predeceases the account owner and no contingent beneficiary is named, the account may pass to the estate and go through probate, losing the tax benefits of the beneficiary designation structure. Keeping contingent beneficiary designations current is as important as keeping the primary designation current.
Under the SECURE Act of 2019 and subsequent guidance, most non-spouse beneficiaries who inherit a traditional IRA or 401(k) must deplete the account within ten years. There are exceptions for eligible designated beneficiaries: surviving spouses, minor children of the deceased (until they reach the age of majority), disabled or chronically ill individuals, and individuals not more than ten years younger than the deceased.
The ten-year rule was clarified by IRS regulations in 2024 to specify that if the original account owner had begun taking required minimum distributions before death, the beneficiary must also take annual minimum distributions within the ten-year window in addition to depleting the account by year ten. This requirement had been ambiguous for several years following SECURE's enactment and is now settled.
The practical implication for estate planning is that large pre-tax retirement accounts are not efficient legacy vehicles under current law. The tax cost imposed on heirs who inherit large traditional IRAs can be substantial. Roth accounts, which also fall under the ten-year rule for non-spouse beneficiaries, are far more efficient because the distributions are tax-free regardless of the beneficiary's income level.
Assets in a taxable brokerage account receive a step-up in cost basis to the date-of-death fair market value when the owner dies. This means that the capital gains embedded in appreciated taxable assets are permanently eliminated at death. A stock purchased for $10 that is worth $100 at death receives a new basis of $100. The heir can sell it immediately with no capital gains tax.
This step-up in basis makes the taxable account one of the most powerful estate planning tools for retirees with appreciated positions. Assets that have large embedded gains are better held in taxable accounts and passed to heirs rather than sold during the owner's lifetime. In contrast, assets that the owner intends to spend during retirement can be drawn from taxable accounts without the step-up benefit.
The strategic implication is that Roth conversions and taxable account spending should be coordinated with basis step-up planning. Converting all taxable appreciated assets to cash and then moving to Roth may be less efficient than leaving highly appreciated taxable assets to heirs while converting pre-tax IRA assets to Roth during lifetime.
Among retirement account types, Roth IRAs are the most efficient legacy vehicles under current law. When a Roth IRA is inherited by a non-spouse beneficiary, the ten-year depletion rule applies, but distributions are tax-free. A beneficiary who inherits a $500,000 Roth IRA receives $500,000 in tax-free assets over the ten-year distribution period. A beneficiary who inherits a $500,000 traditional IRA receives $500,000 in ordinary income spread over ten years, taxed at their marginal rate.
For account owners who want to leave a tax-efficient legacy, systematically converting pre-tax balances to Roth during the low-income window of early retirement is both a personal tax planning strategy and an estate planning strategy. The conversion pays tax at the owner's current rate and delivers a tax-free asset to heirs who would otherwise inherit a taxable one.
The American College of Trust and Estate Counsel Foundation has produced analysis on the impact of the SECURE Act on estate planning for retirement account holders. Their research shows that the elimination of the stretch IRA requires a fundamental rethinking of legacy planning strategies that had been in place for decades. Strategies that relied on stretch distributions to minimize heir taxation are no longer available, and the replacement strategy for most families is a combination of Roth conversion during the owner's lifetime and careful beneficiary designation structure to route assets to the most tax-advantaged heirs.
Michael Kitces has written extensively on how the SECURE Act changes the calculus of Roth conversion as a legacy tool. His analysis shows that for account owners who do not need all of their Roth assets for retirement income, converting to Roth during the low-income years of early retirement creates a more efficient legacy than leaving pre-tax assets for heirs. The Roth conversion pays tax at the owner's rate, which is often lower than the rate heirs would pay on inherited traditional distributions during their peak earning years.
The current federal estate tax exemption is approximately $13.6 million per individual as of 2024, indexed for inflation. This exemption was doubled by the Tax Cuts and Jobs Act of 2017 and is scheduled to revert to approximately half its current level at the end of 2025, absent congressional action. For high-net-worth households approaching or exceeding the lower exemption amount, the potential exemption reduction creates urgency around gifting strategies and trust structures that can be implemented before the sunset.
The uncertainty around the exemption reduction argues for consulting with an estate attorney well before the potential change date. Strategies that are optimally implemented in advance, including irrevocable trusts, spousal lifetime access trusts, and accelerated gifting, cannot easily be retroactively applied after the exemption changes.
The most common and most preventable estate planning mistake is outdated beneficiary designations on retirement accounts, life insurance, and annuities. Forms filed at the time of plan enrollment, decades ago, may name ex-spouses, deceased parents, or family members whose circumstances have changed. Beneficiary designations override wills and overrides are permanent. Reviewing and updating all beneficiary forms annually takes less than an hour and can prevent catastrophic outcomes.
Under the ten-year rule, a large traditional IRA left to an heir in their peak earning years creates a compressed, high-tax inheritance. A $1,000,000 traditional IRA distributed over ten years adds $100,000 per year to a high earner's income, potentially all taxed at 32% or higher. Converting some or all of that IRA to Roth during the owner's lifetime at a lower rate preserves more after-tax value for the heir, even though the owner pays the conversion tax.
Trust structures that were appropriate when created may not function correctly with current retirement account law. A trust named as beneficiary of a retirement account needs to meet specific requirements to qualify for favorable distribution rules. Trusts that don't meet these requirements may not qualify for the ten-year rule at all and may be required to distribute on the five-year rule or even in a single year. Existing trust structures should be reviewed by an estate attorney in light of the SECURE Act changes.
A retiree who sells appreciated positions in a taxable brokerage account to fund spending is giving up the step-up in basis that those assets would receive at death. From an estate planning perspective, it may be more efficient to draw retirement income from pre-tax accounts, where distributions reduce the RMD burden and the estate tax exposure, while leaving appreciated taxable assets to heirs who receive the step-up. The optimal strategy coordinates taxable spending with step-up planning.
Both spouses should review all beneficiary designations on retirement accounts, life insurance, annuities, and pension survivor elections at least annually and after any major life event: marriage, divorce, birth of a child, death of a beneficiary. This review should be a standing item on the annual financial planning agenda.
If leaving a tax-efficient legacy is a priority, incorporate it into the Roth conversion analysis. Converting more aggressively during the low-income retirement window may make sense not only for the owner's own tax situation but to deliver a more efficient inheritance to heirs who would otherwise inherit taxable pre-tax accounts.
If trusts are part of the estate plan, have them reviewed by an estate attorney who is familiar with SECURE Act compliance requirements for trusts named as retirement account beneficiaries. Outdated trust structures may inadvertently trigger unfavorable distribution rules.
Consider which assets in the taxable account are most likely to be held until death and would therefore receive the step-up in basis. Highly appreciated, low-basis positions that the owner doesn't need to sell for income purposes are excellent candidates to hold for the step-up. Assets with little embedded gain or assets the owner will need for income are better candidates for spending during retirement.
If the answer is more than two years ago, request a comprehensive review immediately.
This question calculates the tax cost of the current strategy and quantifies the benefit of any Roth conversion alternative.
Trust beneficiary compliance with SECURE Act requirements is a technical area where advisors and attorneys need to work together.
For households with net worth approaching or above the lower exemption threshold, this is a time-sensitive question.
This question coordinates the withdrawal sequencing strategy with the estate planning goal of maximizing the step-up in basis for heirs.
The retirement planning calculator at plan.johnkoyle.com was built to model exactly the dynamics discussed in this paper. The retirement calculator at plan.johnkoyle.com models your three account types, pre-tax, Roth, and taxable, separately throughout the retirement projection. This lets you see the balance trajectory in each account at each age, which is the starting point for estate planning conversations about which accounts will likely have remaining balances at death and therefore be subject to inheritance rules. The Withdrawal Strategy tab shows how different withdrawal sequences affect the relative growth of each account type over time, helping you identify the most tax-efficient legacy structure for your specific situation.
John Koyle, AIF®, is the Co-Founder of Red Cedar Wealth Advisors, headquartered in Pocatello, Idaho. He holds the Accredited Investment Fiduciary (AIF®) designation, awarded by the Center for Fiduciary Studies (Fi360), which signifies completed coursework, a rigorous examination, and ongoing continuing education in fiduciary responsibility and prudent investment practices.
John serves individuals and families in or approaching retirement throughout eastern Idaho, the Pacific Northwest, and across the country via Zoom. Clients work directly with John, not a junior team. Red Cedar Wealth Advisors operates under Osaic Wealth, Inc. (Member FINRA/SIPC) and Osaic Advisory Services, LLC for investment advisory services.
Every client relationship is built on five integrated disciplines. The proportions shift with the client and the moment. The integration is constant. Most of the actual value sits in how these disciplines connect, not in any single one of them.
Retirement planning is a discipline that barely existed a generation ago. For most of modern history, people worked until they physically couldn't and then they died, usually fairly close together. The idea that an individual should spend decades saving, then spend decades drawing down those savings, with a plan that accounts for inflation, taxation, sequence risk, healthcare, longevity, and estate transfer, that's maybe forty years old.
Which means almost nobody your age grew up watching their parents do it properly. There's no cultural muscle memory. The advice industry backfilled that gap with rules of thumb that work sometimes and fail catastrophically the rest of the time. The 4% rule. 'You can take Social Security at 62.' 'Target-date funds will handle it.' These are not bad starting points. They are terrible ending points. Real planning is specific, personal, and built on principles that hold up across the full range of outcomes, not just the average one.
The tax code is a set of instructions Congress wrote to shape behavior. Aligning your financial life with those instructions is not aggressive planning. It is the planning. Roth conversion sequencing, capital gains compression on concentrated positions, charitable remainder trusts, Social Security timing, beneficiary coordination. None of these are obscure. They're all legitimate, all written into the code intentionally, and all under-used. Most CPAs handle compliance. The strategy work is a different discipline entirely.
Seventy percent of family wealth doesn't survive two generations. The reason isn't bad markets. The cause is failure to communicate, outdated documents, and no plan for preparing heirs. Beneficiary designations regularly override well-crafted wills. Trust structures created a decade ago no longer match current law or current family. The portfolio that built the wealth isn't the structure that transfers it. The work here is coordinating with your attorney to align documents, beneficiaries, gifting strategies, and trust funding with what you actually want to happen.
Every week, before any portfolio decision, John runs through four layers of market health: economic conditions, market internals, valuations, and sentiment. Each layer gets scored and those scores combine into a composite that maps directly to a portfolio posture, from aggressive on the positive end to defensive on the negative. The work is in the scoring. Once the scoring is done, the positioning follows. That removes one of the most dangerous things in investing: making it up as you go.
The protection gap quietly kills more plans than markets do. A significant net worth paired with inadequate liability coverage is a lawsuit away from a serious problem. Long-term care is more acute: a multi-year care event for one spouse can consume what was meant for the survivor. Most advisors relegate risk to a footnote because insurance conversations are uncomfortable. The math doesn't care. Coverage adequacy, umbrella sizing, long-term care planning, and life insurance structure sit alongside the portfolio in any complete plan.
These are the principles behind every plan John builds.
To begin a conversation, visit johnkoyle.com, use the retirement planning calculator at plan.johnkoyle.com, or reach John directly at john@redcedarwealth.com or (208) 915-8400. Initial consultations are complimentary and carry no obligation.