There’s a version of your tax situation that only your children will ever see.
You won’t find it on your return. It won’t show up in April. But it’s quietly accumulating inside the retirement accounts you’ve spent decades building, and for families with significant wealth in traditional IRAs and 401(k)s, the gap between what they think they’re leaving behind and what the next generation actually keeps can be one of the most jarring surprises in financial planning.
The culprit isn’t bad investing or poor planning, necessarily. It’s a structural feature of how tax-deferred accounts work — and understanding it changes the entire frame of what “building a legacy” actually means.
The Inheritance Nobody Talks About
Here’s the part most people miss. When you contribute to a tax deferred retirement account, you get a real and meaningful benefit: you reduce your taxable income now, and any growth is tax free. That’s a powerful advantage during your high income years.
But deferred doesn’t mean eliminated. It means the bill is waiting, and under the SECURE Act’s 10-year rule, that bill tends to arrive in your heirs’ hands at a very emotional time.
When a non-spouse beneficiary inherits a tax-deferred retirement account, they must take a required distribution every year for the next 10 years and deplete the entire account by the end of year 10. Every distribution is taxed as ordinary income, stacked on top of whatever the beneficiary is already earning. For a child in their 40s or 50s — likely in the midst of their own peak earning years — a large inherited IRA doesn’t feel like a windfall. It can feel like tax bomb that skyrockets their own earnings from wages up in to a higher tax rate.
The tax was never avoided. It was deferred, and then handed off.
Your Bracket Today Is Already a Legacy Decision
Here’s where the story shifts from problem to possibility.
Because your marginal rate today — the rate applied to your highest dollars of income — is a real lever. And for families with significant pre-tax retirement assets, the years between retirement and the start of required minimum distributions are one of the most valuable planning windows that exist.
Income is typically lower during those years than it will ever be again. RMDs haven’t forced withdrawals yet. Social Security timing is still flexible. That combination creates room to convert pre-tax dollars to Roth at a rate that may be considerably lower than what your heirs would face when they inherit and begin drawing the account down during their peak years.
A Roth IRA has tax free growth potential. Qualified withdrawals from a Roth IRA are never taxed, and the account carries no required minimum distributions during the owner’s lifetime. When a beneficiary inherits Roth dollars, those withdrawals are tax-free as well — which can make an enormous difference in how much of the account they actually keep.
That’s not a small distinction. It’s often the difference between a legacy that transfers cleanly and one that erodes in ways no one anticipated.
The Art of Filling the Bracket
The families who get this right don’t make dramatic moves. They make deliberate, consistent ones.
The strategy is called bracket-filling: each year, we calculate for our clients how much room remains in your current tax bracket and convert that amount from a pre-tax account to a Roth. You pay a known rate today. You eliminate an unknown rate later. And you do it carefully enough that you’re not triggering a higher bracket or creating unintended Medicare premium increases in the process.
The goal isn’t to convert everything at once. It’s to shift the composition of your estate over time, steadily moving dollars from accounts your heirs would pay full ordinary income tax on into the accounts they inherit free and clear from Uncle Sam. Done consistently over the years between retirement and age 73, that discipline can meaningfully reshape what transfers to the next generation.
It requires modeling — the right answer depends on your full income picture, asset mix, state tax situation, and family circumstances. But the families who’ve done this work often describe it the same way: they wish they’d started the conversation sooner.
The Questions Worth Asking Before It’s Too Late
Legacy planning tends to happen in the present tense — in the accounts held today, the decisions made this year, the window that’s either open or quietly closing. Most families focus on the investments. Fewer think about the tax structure underneath them.
A few questions worth sitting with: Are most of your retirement assets sitting in pre-tax accounts? Do you know what tax bracket your beneficiaries are likely to be in when they inherit? Has anyone ever mapped out what your heirs would actually owe on your IRA under current rules?
If those questions don’t have clear answers yet, that’s not a criticism — it’s a starting point and we can help!
What Planning Looks Like When It’s Done Right
At Gatewood, we think about legacy not as a document or a date, but as a set of decisions made across an entire lifetime of financial planning. Our Three Buckets of Wealth framework organizes assets around time horizon and tax treatment, so families can see at a glance which dollars are accessible now, which are positioned for stability, and which are designed to carry forward.
When retirement accounts are layered into that structure with intention — with an eye toward what transfers, to whom, and at what cost — the conversation about marginal rates stops being a technical exercise and becomes something more meaningful. It becomes a conversation about what you actually want your family to receive.
If that conversation hasn’t happened yet, there’s no better time to start.
Sources & References
- Internal Revenue Service, Revenue Procedure 2025-32 — 2026 Tax Brackets and Standard Deduction Amounts. www.irs.gov
- Liberty Group, “Roth Conversion Planning in 2026: What to Review Early in the Year.” libertygroupllc.com/blog/roth-conversions-2026-what-to-review-early-in-the-year
- Stonewood Financial, “Roth Conversion Rules 2026: Complete Guide for Financial Advisors.” stonewoodfinancial.com/roth-conversion-rules-2026
- Mercer Advisors, “2026 Tax Strategies with Roth Conversions.” merceradvisors.com/retirement/2026-tax-strategies-with-roth-conversions \
- IRA Financial, “Roth IRA Conversion Strategies for 2026.” irafinancial.com/blog/roth-ira-conversion-strategies-2026
- Income Lab, “Roth Conversion Strategy 2026: The Advisor’s Complete Guide.” incomelaboratory.com/roth-conversion-strategy-2026-guide
Important Disclosures:
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Gatewood Wealth Solutions and LPL Financial do not provide legal or tax advice or services.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
