For decades, IRAs were the go-to legacy strategy. Save money in a tax-advantaged account, grow it over time, and leave it to your kids so they could have a financial cushion when you’re gone. But if you’re still thinking that way in 2025, your estate plan may be built on a tax time bomb—and you might not even know it.

Thanks to changes in federal law, many families are discovering the hard way that inheriting an IRA is no longer the tax-free windfall it once seemed.

In 2019, the SECURE Act quietly eliminated the “stretch IRA” for most non-spouse beneficiaries. That used to allow kids and grandkids to take required minimum distributions (RMDs) over their lifetimes, stretching out the tax impact. Now? They have just 10 years to empty the account—and every dollar is taxed as ordinary income.

The Hidden Cost of a “Generous” Inheritance

Let’s say your adult child is in their peak earning years, pulling in a solid six-figure salary. If they inherit your $400,000 traditional IRA, that money doesn’t come as a lump sum of bliss—it comes with a tax meter ticking loudly in the background.

If they don’t drain it steadily over 10 years, they could be forced to take large distributions in a single year, pushing them into a much higher tax bracket. Suddenly, that “gift” you worked your whole life to build is handing more to the IRS than to your family.

It’s the kind of financial booby trap that wasn’t part of the original plan. And yet, millions of Baby Boomers are marching toward retirement with outdated estate plans and no idea this rule has changed.

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Why This Is Especially Risky Now

As more Boomers enter retirement and begin transferring wealth, we’re on the verge of what economists call the “Great Wealth Transfer.” Estimates suggest that over $84 trillion will change hands over the next two decades. Much of that will be tied up in tax-deferred accounts like IRAs and 401(k)s.

But unlike wealth passed through Roth accounts or certain trusts, traditional IRAs come with a significant tax bill baked in. And the IRS is very ready to collect.

The timing couldn’t be worse: many heirs are already navigating higher living costs, delayed retirements, and volatile markets. Add a surprise tax burden, and what should be a stabilizing inheritance can become a financial strain.

The Role of Tax Diversification

This is where the concept of tax diversification becomes essential. Most retirement savers understand investment diversification—spreading your assets across different sectors, risk profiles, or geographies. Tax diversification is the same idea, but with your future liabilities.

By combining traditional IRAs with Roth accounts, health savings accounts (HSAs), or even taxable brokerage accounts, retirees can manage how and when taxes are paid—not just during their lifetime, but also for their heirs.

It’s not just about having money—it’s about having flexibility. A well-structured plan gives your beneficiaries the ability to make smarter decisions, avoid large tax years, and preserve more of your legacy.

What You Can Do Right Now

If you’re over 59½ and planning to leave money to your kids, now is the time to ask tough questions. Could Roth conversions help reduce the taxable load? Should you update your beneficiaries? Do your kids know they’ll need to withdraw funds within 10 years—and are they prepared?

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Companies like RetireUS are trying to help people rethink legacy planning through Government Transition Decision HQ, a free resource built specifically for federal families dealing with retirement transitions and estate questions. By working with independent fiduciary professionals, users get advice rooted in legal responsibility—not commissions or product sales.

That’s critical, because many traditional financial advisors don’t bring taxes into the conversation until it’s too late. Fiduciaries are legally obligated to act in your best interest and often look at the full financial picture—income, assets, benefits, and long-term impact.

Don’t Let the IRS Write Your Legacy

If you’ve spent your life building a nest egg with the intention of helping your family, you deserve more than just assumptions. The rules have changed. And while your heart may be in the right place, the tax code isn’t sentimental.

A traditional IRA might still be part of your plan—but it shouldn’t be the plan. Not if you want your legacy to actually benefit your kids and not just boost federal revenue.

Because in 2025, leaving your IRA to your children without a clear, tax-efficient strategy isn’t just outdated—it’s potentially harmful. And the worst part? You won’t be around to see it unfold.