Yes, the estate tax on a Roth IRA is real: the full account balance is included in your gross estate at death, and it can be taxed at the federal or state level even though your beneficiaries will still receive the distributions income tax-free. Whether any tax is actually owed comes down to the size of your total estate. For 2026, the federal exclusion is $15 million per person, so only estates above that threshold owe the 40% federal estate tax.1Internal Revenue Service. What’s New – Estate and Gift Tax The confusion almost always comes from mixing up two different taxes: income tax, which Roth distributions escape, and estate tax, which applies to what you transfer at death regardless of how the income was taxed on the way in.
Why a Roth IRA Counts Toward Your Estate
Federal law defines the gross estate broadly. It includes the value of every property interest you hold at the time of death.2Office of the Law Revision Counsel. 26 USC 2033 – Property in Which the Decedent Had an Interest A Roth IRA is your property. You own it, you name the beneficiary, and its balance belongs to your estate the moment you die. The IRS does not care that the money inside was already taxed on the way in or that withdrawals would have been tax-free if you had lived. Estate tax is a transfer tax on what you pass along, not an income tax on what you earned.
This catches people off guard because Roth IRAs are so closely associated with the phrase “tax-free.” They are tax-free for income tax purposes. They are not invisible for estate tax purposes. A $2 million Roth IRA adds $2 million to your gross estate, the same way a brokerage account or a piece of real estate would.
The 2026 Federal Exclusion
Being included in the gross estate is not the same as owing tax. Congress provides a large exclusion that shelters most estates entirely. For anyone dying in 2026, the basic exclusion amount is $15 million. The One Big Beautiful Bill Act, signed into law on July 4, 2025, raised the figure from the 2025 level of $13.99 million and made the higher exclusion permanent, with inflation adjustments starting in 2027.1Internal Revenue Service. What’s New – Estate and Gift Tax Only the portion of an estate that exceeds $15 million is taxed, and the top rate is 40%.
Married couples can effectively double this protection through a portability election. When the first spouse dies, the executor can file Form 706 to transfer any unused exclusion to the surviving spouse, giving the couple a combined shield of up to $30 million. Portability is not automatic. The executor must file Form 706 within nine months of death, with a six-month extension available, even if the estate is too small to otherwise require the return. Executors who miss that window can still file under a late-election procedure up to the fifth anniversary of the decedent’s death, though waiting creates unnecessary risk.3Internal Revenue Service. Instructions for Form 706
For most households, the federal estate tax simply does not apply. Fewer than 1% of estates exceed the exclusion. But if your combined assets, counting retirement accounts, real estate, life insurance, and business interests, approach or exceed $15 million, your Roth IRA balance is part of the math.
State Estate and Inheritance Taxes Are the Bigger Risk
The federal exclusion is generous. State exclusions often are not. Roughly a dozen states and the District of Columbia impose their own estate taxes with far lower thresholds. Oregon’s kicks in at $1 million. Massachusetts starts at $2 million. Several others fall in the $3 million to $7 million range. A Roth IRA that sails past the federal exclusion with room to spare could still push a smaller estate over a state-level threshold.
Five states also levy an inheritance tax, which is paid by the person receiving the assets rather than the estate itself. Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania each tax inheritances at rates that vary based on how closely the beneficiary is related to the deceased. Surviving spouses are typically exempt, but siblings, nieces, nephews, and unrelated beneficiaries can face rates up to 15% or 16% depending on the state. Maryland is the only state that imposes both an estate tax and an inheritance tax.
Anyone with a total estate that might exceed $1 million to $2 million should check the rules in their state of residence. The Roth IRA’s income tax advantage does nothing to offset a state estate or inheritance tax bill.
How the Account Is Valued and Reported
The default rule is simple. The Roth IRA is valued at its fair market value on the date of death.4Internal Revenue Service. Frequently Asked Questions on Estate Taxes That means the account balance on that specific day, including contributions and accumulated earnings. The executor requests a date-of-death statement from the financial institution holding the account.
If markets drop sharply after the death, the executor can elect an alternate valuation date, which values assets six months after death instead. This election is only allowed when it reduces both the gross estate and the total estate tax owed.5Office of the Law Revision Counsel. 26 USC 2032 – Alternate Valuation If the Roth IRA is distributed, sold, or otherwise disposed of within that six-month window, it is valued as of the distribution date rather than the six-month mark.
The Roth IRA’s value is reported on Form 706, the federal estate tax return, using Schedule I (Annuities). The executor lists the custodian’s name, the account number, and the valuation date used. Form 706 is only required when the gross estate plus adjusted taxable gifts exceeds the basic exclusion amount, unless the estate is filing solely to elect portability of the unused spousal exclusion.
What Your Beneficiaries Actually Receive
The Roth IRA’s real advantage shows up after death. Even when the account is included in the gross estate and potentially subject to estate tax, distributions to the beneficiary remain income tax-free, provided they qualify. A qualified distribution requires the Roth IRA to have been open for at least five tax years, a clock that started when the original owner first funded any Roth IRA.6Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs) – Section: What Are Qualified Distributions That five-year clock carries over to the beneficiary.
If the five-year requirement has not been met at the time of the owner’s death, withdrawals of contributions are still tax-free, but withdrawals of earnings are taxable as ordinary income until the five-year mark passes.7Internal Revenue Service. Retirement Topics – Beneficiary For most inherited Roth IRAs where the owner held the account for years, this is not a problem. A beneficiary who inherits a recently opened or recently converted Roth IRA should check the calendar before assuming every dollar comes out tax-free.
One boundary worth naming: post-death distribution timing is a separate topic. Under the SECURE Act, most non-spouse beneficiaries must empty an inherited Roth IRA within ten years, while surviving spouses and certain other eligible designated beneficiaries have more flexible options.7Internal Revenue Service. Retirement Topics – Beneficiary Those rules affect when the money comes out, not whether estate tax applies at death.
Using Roth Conversions to Shrink a Taxable Estate
For estates that might face federal or state estate tax, converting a traditional IRA to a Roth IRA during your lifetime can be a deliberate planning move. When you convert, you pay income tax on the amount converted. That tax payment reduces the size of your taxable estate. The remaining Roth IRA balance then passes to your beneficiaries free of income tax, even though it is still included in the gross estate.
The math works like this. A $1 million traditional IRA might generate $350,000 in income tax at conversion, depending on your bracket, leaving $650,000 in a Roth IRA and $350,000 less in your estate. Your heirs receive $650,000 that grows and distributes tax-free, rather than $1 million that would be taxed as ordinary income when they withdraw it. For taxable estates, the income tax paid on conversion effectively shifts dollars out of the estate before the estate tax calculation, reducing the 40% federal bite on those dollars.
Conversions make the most sense when you do not need the IRA funds during your lifetime and expect your estate to exceed the applicable exclusion. The strategy also works for state-level exposure, where lower thresholds catch more estates. Spreading conversions across multiple tax years can keep the income tax cost manageable by avoiding a jump into the highest brackets in any single year.