Fidelity’s 4 Roth strategies could save your family a fortune in taxes | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

If you’ve spent decades building a retirement portfolio inside a traditional IRA or 401(k), there’s a number you probably haven’t run: how much of that money the IRS will take from your heirs after you’re gone.

Under the SECURE Act of 2019, most non-spousal beneficiaries: adult children, siblings, nieces and nephews must empty an inherited retirement account within 10 years of the original owner’s death.

Every withdrawal from a traditional IRA is taxed as ordinary income. Depending on the heir’s tax bracket, that can mean losing 22%, 32%, or even 37% of the account to federal taxes alone, before state taxes enter the picture.

Fidelity Investments published an analysis recently, outlining four Roth IRA strategies designed to help pre-retirees reduce or eliminate that tax burden for their beneficiaries.

When I dug into Fidelity’s framework, what stood out wasn’t the strategies themselves; most advisors have been talking about Roth conversions for years.

What stood out was the urgency. The combination of permanent tax brackets, a record-high estate exemption, and the 10-year rule creates a set of conditions that didn’t exist even two years ago.

Why Fidelity says Roth planning is a tax-and-timing decision

Fidelity frames Roth IRAs as among the most income-tax-efficient assets to leave to heirs for two reasons: Roth owners face no required minimum distributions during their lifetimes, and qualified Roth withdrawals by beneficiaries are generally tax-free.

That distinction matters more now than it did five years ago.

Before the SECURE Act, non-spousal beneficiaries could stretch inherited IRA withdrawals over their own life expectancy, sometimes over 30 or 40 years. The 10-year rule dramatically compressed that timeline, and the tax consequences did as well.

“Given the potential for tax-free growth and distributions, a Roth IRA may be the most income-tax-efficient asset to leave to your heirs,” said Michelle Caffrey, regional vice president of advanced planning at Fidelity Investments.

“For clients who want to maximize what they’re leaving to their heirs and spend down their own taxable estate, it’s very likely that we’ll be having a discussion about Roth conversions.”

To understand why, consider this specific example:

If you leave a $500,000 traditional IRA to an adult child earning $150,000 a year, the forced withdrawals over 10 years could push them into the 32% or even 37% federal tax bracket for a full decade. That’s $110,000 to $185,000 in federal income taxes on the inheritance; money that would be entirely tax-free if the account were a Roth.

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To me, that is the number that should change the way pre-retirees think about Roth conversions. It’s the difference between your child keeping the full inheritance or sending a six-figure check to the IRS.

Strategy 1: Your savings can grow longer without forced withdrawals

Traditional IRA owners must begin taking required minimum distributions at age 73 (or 75 for those born after 1959), according to the IRS. These withdrawals are mandatory regardless of whether the owner needs the money, and every dollar withdrawn counts as taxable income.

Roth IRA owners face no such requirement during their lifetime. Neither does a surviving spouse who rolls the inherited Roth into their own account.

Practically, this means instead of being forced to draw down a tax-sheltered account on the government’s schedule, a Roth owner can allow the full balance to continue compounding tax-free.

Over a 10- to 20-year window, the difference in ending portfolio value can be substantial, and every dollar of that additional growth passes to beneficiaries tax-free.

There is also an investment-timing advantage that often goes overlooked. Traditional IRA owners who need to take RMDs during a market downturn are forced to sell assets at depressed prices and pay tax on the withdrawal.

Roth owners are never forced into that position. We’ve covered how missing RMDs can result in penalties, but the flip side is equally important: taking the wrong amount at the wrong time can cascade into higher taxes and Medicare costs.

Strategy 2: Beneficiaries receive income-tax-free withdrawals under the 10-year rule

This is the strategy with the most direct financial impact for heirs.

Under the SECURE Act’s 10-year rule, most non-spousal beneficiaries must fully withdraw all funds from an inherited retirement account within a decade.

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For traditional IRAs, every dollar withdrawn is taxed as ordinary income. For a beneficiary who is already in their peak earning years — ages 35 to 55, that additional income can push them into higher tax brackets, increase taxes on their Social Security benefits, and trigger Medicare IRMAA surcharges.

Inherited Roth IRAs follow the same 10-year withdrawal timeline. The critical difference is that qualified Roth distributions are generally tax-free, assuming the original account satisfied the five-year holding requirement.

There is a geographic dimension as well. Caffrey noted in Fidelity’s analysis that a Roth conversion completed by a retiree living in a state with no income tax, such as Florida, effectively eliminates state-level taxes for a beneficiary residing in a high-tax state like California or New York.

“An IRA owner who converts to a Roth in a state where they pay no taxes is really helping that beneficiary who lives in a high-income-tax state,” Caffrey said.

Strategy 3: You can reduce your taxable estate by prepaying the conversion tax

For 2026, the federal estate tax exemption is $15 million per person ($30 million for married couples), according to IRS guidance on 2026 tax adjustments. That represents a significant increase from $13.99 million in 2025, made permanent by the One Big Beautiful Bill Act.

The estate-planning advantage of a Roth conversion is this: when you convert a traditional IRA to a Roth, you pay income tax on the converted amount. That tax payment comes out of your taxable estate. The Roth account itself is still included in the estate’s value, but the income tax your heirs would have owed on those dollars is eliminated.

For estates near or above the exemption threshold, the federal estate tax rate is 40% on amounts above the exemption. And 12 states plus Washington, D.C., impose their own estate taxes with exemption thresholds well below the federal level — Massachusetts starts at $2 million, Oregon at $1 million.

The math is clearest for high-net-worth families, but the principle applies to anyone whose estate could exceed state-level thresholds. A Roth conversion effectively allows you to transfer wealth to your heirs more efficiently by paying down the tax liability in advance.

Strategy 4: Roth conversions can reduce the tax burden inside a trust

This is the part of Fidelity’s analysis that I think most readers will encounter for the first time, and it may be the most consequential for families with complex estate plans.

Many high-net-worth estate plans use trusts to control how assets are distributed after death. The problem is that trusts reach the highest federal income tax bracket — 37% at just $16,250 in taxable income for 2026, according to the IRS. For an individual, that same 37% rate doesn’t apply until taxable income exceeds $640,600.

That compression means a traditional IRA payable to a trust can generate a much larger tax bill than the same account paid directly to an individual beneficiary.

By converting to a Roth before death, you eliminate that trust-level income tax entirely. Your heirs retain the asset-protection and distribution-control benefits of the trust without the income-tax penalty.

Fidelity’s analysis notes that this is particularly relevant for families using conduit trusts or accumulation trusts, where the tax treatment of inherited IRA distributions differs depending on the trust’s structure.

What to consider before converting and where the risks are

Roth conversions are not universally advantageous. Fidelity’s own analysis cautions that conversions are complex and must be evaluated as part of a comprehensive financial and estate plan.

“A Roth conversion has to be considered as part of your comprehensive financial and estate plan, considering both short- and long-term impacts as well as alignment to your overall goals,” Caffrey said.

Factors that could eliminate the benefit of a conversion

A Roth conversion can be a smart way to lock in today’s tax rate for tax-free retirement income later, but the extra income it creates can trigger costs that erase the upside.

Medicare IRMAA surcharges. A Roth conversion increases your adjusted gross income, which can trigger higher Medicare Part B and Part D premiums. In 2026, the standard monthly Part B premium is $202.90, but individuals with modified AGI above $109,000 (and married couples above $218,000) can pay between $284.10 and $689.90 per month, according to CMS.
Tax-bracket management. The IRS confirmed 2026 bracket thresholds: the top individual rate of 37% begins at $640,600 for single filers. Converting at or near a bracket boundary can push income into a higher rate, reducing the long-term benefit. Financial planners generally recommend converting up to the top of your current bracket, not into the next one, and spreading conversions across multiple years.
Charitable giving plans. If you plan to use qualified charitable distributions to satisfy your RMD requirement and leave your IRA to a charitable beneficiary at death, a Roth conversion may not be necessary. Neither you nor the charity would owe income tax on those funds under a traditional IRA structure.
Near-term cash needs. If you expect to draw on IRA funds within the next few years to cover living expenses, paying the conversion tax now reduces the account balance available for those expenses.

Steps to evaluate a Roth conversion for your situation

When I step back from Fidelity’s four strategies and think about how I would approach this for my own family, the analysis points toward caution and precision rather than a single large conversion.

Here is how I would translate their framework into concrete steps:

Map your conversion window. The years between the end of full-time employment and the start of RMDs, when taxable income is temporarily lower, are often the most tax-efficient period to convert.
Run the Medicare lookback. Check whether a proposed conversion amount would push your AGI above an IRMAA threshold in two years. CMS publishes the current premium brackets annually.
Use a bracket-cap approach. Convert up to the top of your current tax bracket, or up to a MAGI level that avoids an IRMAA tier jump, whichever is lower.
Coordinate with RMD timing. If you’re approaching age 73, note that delaying your first RMD to April 1 of the following year can result in two taxable distributions in a single year, according to the IRS. Size your conversion accordingly.
Include your beneficiaries in the planning. If your likely heirs are high earners in high-tax states who will inherit during their peak earning years, the Roth conversion benefit may be substantially larger than your own tax cost.

When a Roth conversion may backfire

Roth conversions may not make sense if you need IRA funds for near-term living expenses, if you’re at the edge of Medicare IRMAA thresholds, or if you would need to convert at a substantially higher tax rate than your heirs would pay on inherited withdrawals.

In those cases, the right approach may be to convert in smaller amounts over a longer period rather than forgoing the strategy entirely.

Put simply, Fidelity is making a case for pre-retirees to pay taxes now so their families don’t pay more later. Whether that trade-off works for you depends on your brackets, your health care costs, and your heirs’ financial situation, but the one thing you shouldn’t do is ignore the math.