Yes, IRAs are included in estate tax. Every IRA you own at death, whether Traditional, Roth, SEP, or SIMPLE, is counted in your federal gross estate at its fair market value on the date of death.1Office of the Law Revision Counsel. 26 USC 2031 – Definition of Gross Estate Whether that inclusion actually produces a tax bill is a different question. For deaths in 2026, the federal estate tax exclusion is $15 million per individual, so estates under that line owe no federal estate tax regardless of how large the IRA is.2Internal Revenue Service. What’s New – Estate and Gift Tax Above it, the tax rate reaches 40%, and IRAs bring their own complications on top.
Which IRAs Are Counted, and How
Federal law defines the gross estate to include the value of all property a person owns or controls at death, and IRAs sit squarely inside that definition.1Office of the Law Revision Counsel. 26 USC 2031 – Definition of Gross Estate Traditional, Roth, SEP, and SIMPLE accounts are all treated the same way for this purpose. It does not matter that a Roth was funded with after-tax dollars or that a Traditional IRA was never touched during retirement. The full balance goes into the gross estate at its date-of-death value.
One point trips people up: the gross estate is not the same as the probate estate. IRAs pass directly to whoever is named on the beneficiary designation form, bypassing probate entirely.3Internal Revenue Service. Retirement Topics – Beneficiary Your will has no say over the IRA. But avoiding probate does not mean avoiding estate tax. The IRS still counts the account when calculating whether the estate owes federal tax.
The $15 Million Threshold
Federal estate tax only applies to the portion of the gross estate above the basic exclusion. For 2026, that exclusion is $15 million per individual.2Internal Revenue Service. What’s New – Estate and Gift Tax Every dollar above the line is taxed at rates that climb to 40%.4Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax
The 2017 Tax Cuts and Jobs Act roughly doubled the exclusion, and that higher amount had been scheduled to expire at the end of 2025. The One Big Beautiful Bill Act, signed on July 4, 2025, made the increase permanent and set the 2026 baseline at $15 million, with future inflation adjustments.5Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax There is no longer a scheduled sunset.
To see whether your IRA will actually cost your estate anything in federal tax, add the IRA balance to everything else you own: home, brokerage accounts, life insurance proceeds, business interests, personal property. If the total stays under $15 million, no federal estate tax is due. The IRA still appears on the estate tax return when one is required, but it generates no tax at that level.
Married couples can effectively double the shelter through portability. When the first spouse dies without using the full exclusion, the leftover (the deceased spousal unused exclusion, or DSUE) can transfer to the surviving spouse.5Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax Portability is not automatic. The executor must file Form 706 to elect it, even when no tax is owed.6Internal Revenue Service. Instructions for Form 706 Families miss this constantly because a small first estate seems to have no reason to file a return. Without the filing, the unused exclusion evaporates. The IRS allows a late portability election within five years of death for estates not otherwise required to file, but relying on that backstop is a poor plan.7Internal Revenue Service. Revenue Procedure 2022-32
Leaving an IRA to Your Spouse
The most common way a large IRA avoids estate tax at the first death is the unlimited marital deduction. When you name your U.S. citizen spouse as the IRA beneficiary, the account’s full value is included in the gross estate and then offset by a dollar-for-dollar deduction, producing zero federal estate tax on that asset.8Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse There is no cap. A $5 million IRA and a $50 million IRA both qualify in full.
The deduction is a deferral, not an elimination. Whatever remains in the IRA when the surviving spouse later dies gets included in that spouse’s estate and measured against the exclusion in effect then.
One boundary worth flagging: the unlimited marital deduction does not apply if the surviving spouse is not a U.S. citizen. In that case, the assets must pass into a Qualified Domestic Trust (QDOT) to qualify.8Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse Missing this rule can trigger an immediate estate tax bill on the IRA.
The Double Tax on Inherited Traditional IRAs
Estate tax is not the only tax an IRA can face at death. A Traditional IRA in a taxable estate can get taxed twice: once by the estate tax on inclusion in the gross estate, and again by the income tax when the beneficiary takes distributions. Because a Traditional IRA holds pre-tax dollars, every distribution is ordinary income to the beneficiary at their personal rate. Layering 40% estate tax on top of income tax rates above 35% can consume more than half the account.
Congress softens this with a deduction for Income in Respect of a Decedent (IRD). A beneficiary who inherits an IRA that was subject to estate tax can deduct the portion of estate tax attributable to the IRA when calculating their income tax.9Office of the Law Revision Counsel. 26 USC 691 – Recipients of Income in Respect of Decedents It reduces the combined burden without eliminating it.
Roth IRAs behave differently. Because the original owner already paid income tax on the contributions, qualified distributions to a beneficiary come out income-tax-free as long as the Roth was open at least five years before the owner’s death.3Internal Revenue Service. Retirement Topics – Beneficiary The Roth is still included in the gross estate and still faces estate tax above the exclusion. But the absence of income tax on distributions largely solves the double-tax problem, which is why Roth conversions are a common planning move for taxable estates.
The 10-Year Rule for Non-Spouse Heirs
Even in estates well below the $15 million line, a Traditional IRA left to an adult child or other non-spouse creates a compressed income tax problem. Under the SECURE Act, most non-spouse beneficiaries who inherit an IRA from someone who died in 2020 or later must empty the entire account by the end of the tenth year following the year of the owner’s death.3Internal Revenue Service. Retirement Topics – Beneficiary
A narrow group of eligible designated beneficiaries can still use the life-expectancy method:
- Surviving spouses
- Minor children of the account owner (not grandchildren), until they reach the age of majority, at which point the 10-year clock starts
- Disabled or chronically ill individuals
- Beneficiaries no more than 10 years younger than the deceased owner
Everyone else, including adult children, is stuck with the 10-year window. For a large Traditional IRA, that timeline forces the beneficiary to recognize substantial taxable income within a decade and can push them into higher brackets in the years they take distributions. Splitting IRA beneficiaries across multiple people to spread the income, or converting to Roth before death, are the usual responses.
Reducing the Estate Tax Hit on an IRA
Name a Charity as Beneficiary
An IRA left to a qualified charity generates a full estate tax deduction for the amount transferred, effectively removing the IRA from the taxable estate.10Office of the Law Revision Counsel. 26 USC 2055 – Transfers for Public, Charitable, and Religious Uses The charity also pays no income tax on the distributions, so the double-tax problem vanishes. If you plan to leave money to charity anyway, directing the IRA there and leaving other assets (which receive a stepped-up basis at death) to family is almost always more tax-efficient than the reverse.
A Charitable Remainder Trust funded with an IRA gives a middle path: the charity receives the remainder after a term of years or the beneficiary’s lifetime, and the estate gets a partial charitable deduction based on the projected remainder. The trust itself is tax-exempt, so IRA assets can be liquidated inside it without triggering immediate income tax.
Convert to a Roth During Your Lifetime
Converting a Traditional IRA to a Roth means paying income tax now on the converted amount. That upfront tax payment reduces the size of your taxable estate, and the Roth then grows and distributes to heirs free of income tax. For someone whose estate is likely to exceed $15 million, paying income tax at current rates is often cheaper than paying both estate tax and income tax later. The math depends on your current bracket, expected growth, and how long you expect to live after converting.
State Estate and Inheritance Taxes
The federal exclusion is high enough that most estates never owe federal tax. State-level taxes are a different story. Roughly a dozen states and the District of Columbia impose their own estate tax, and the thresholds are often far lower than $15 million. Some states start taxing estates at $1 million. A handful of other states impose an inheritance tax, which is levied on the beneficiary based on their relationship to the deceased rather than on the total estate. One state imposes both.
In estate-tax states, IRA values are generally included the same way they are for federal purposes. In inheritance-tax states, the beneficiary’s rate depends on how closely they were related to the deceased. Spouses and children are frequently exempt or taxed at very low rates, while more distant relatives and unrelated beneficiaries can face rates reaching 16%. An IRA that would be completely sheltered from federal estate tax can still produce a meaningful state tax bill, particularly for non-spouse beneficiaries who lack both the marital deduction and the close-relative exemption.
Filing the Return and Meeting Deadlines
Form 706 is due nine months after the date of death. Form 4768 provides an automatic six-month extension of the filing deadline, pushing it to fifteen months after death.6Internal Revenue Service. Instructions for Form 706 The extension applies to filing; any tax owed is still due at nine months unless a separate payment extension is requested.
Missing the deadline is expensive. The failure-to-file penalty runs 5% of the unpaid tax for each month or partial month the return is late, capped at 25%.11Internal Revenue Service. Failure to File Penalty A separate failure-to-pay penalty of 0.5% per month accrues on top. When a large IRA has pushed the total estate above the exclusion, those percentages produce big dollar figures fast. Filing on time, even with estimated values for some assets, almost always beats filing late.