Yes, IRAs are included in the federal estate tax calculation. The full date-of-death value of every IRA you own — Traditional, Roth, SEP, or SIMPLE — counts toward your gross estate, no matter who you named as beneficiary.1Office of the Law Revision Counsel. 26 USC 2031 – Definition of Gross Estate Whether that inclusion produces an actual tax bill is a separate question. For deaths in 2026, the federal estate tax only applies once your total estate crosses $15 million per individual.2Internal Revenue Service. What’s New – Estate and Gift Tax Below that line, the IRA is reported but generates no federal estate tax. Above it, the account can get taxed hard, and in some cases taxed twice.
How the IRA Lands in the Gross Estate
The gross estate includes all property a person owns or controls at death, and IRAs fit squarely inside that definition.1Office of the Law Revision Counsel. 26 USC 2031 – Definition of Gross Estate The IRS values the account at its fair market value on the date of death. It makes no difference that a Roth was funded with after-tax dollars, or that a Traditional IRA has sat untouched for twenty years. For estate tax purposes, every IRA dollar counts.
One point of confusion is worth clearing up. An IRA passes directly to whoever is listed on the beneficiary designation form and never touches probate.3Internal Revenue Service. Retirement Topics – Beneficiary Your will does not control the account. But skipping probate does not mean skipping estate tax. The IRS counts the full balance in the gross estate even though the money moves outside the probate process.
The $15 Million Threshold
Federal estate tax only hits the portion of a gross estate that exceeds the basic exclusion amount. For 2026, that exclusion sits at $15 million per individual.2Internal Revenue Service. What’s New – Estate and Gift Tax Add your IRA balances to your home, brokerage accounts, life insurance proceeds, business interests, and personal property. If the total stays under $15 million, there is no federal estate tax to worry about regardless of who inherits the IRA. Every dollar above the exclusion is taxed at rates reaching 40%.4Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax
The $15 million figure is a recent change. The 2017 Tax Cuts and Jobs Act roughly doubled the exclusion, and that higher amount was originally set to expire at the end of 2025. The One Big Beautiful Bill Act, signed into law on July 4, 2025, made the higher exclusion permanent and reset the baseline to $15 million for 2026, with inflation adjustments in later years.5Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax There is no longer a scheduled sunset.
Because the exclusion is this generous, most estates owe nothing. The practical question for most IRA owners is not whether the account is included (it is) but whether the total estate is anywhere close to the threshold.
What Happens When a Spouse Inherits
Naming your U.S. citizen spouse as the IRA beneficiary is the cleanest way to avoid estate tax at the first death. The account’s full value gets included in the gross estate and then wiped out dollar-for-dollar by the unlimited marital deduction, producing no estate tax on that asset.6Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse There is no cap. A $50 million IRA qualifies in full.
The deduction is a deferral, not an elimination. Whatever remains of the IRA when the surviving spouse later dies is included in that spouse’s estate and measured against the exclusion in effect at that time.
Non-Citizen Spouses
The unlimited marital deduction is not available if the surviving spouse is not a U.S. citizen. Federal law disallows the deduction in that case unless the assets pass into a Qualified Domestic Trust (QDOT).6Office of the Law Revision Counsel. 26 USC 2056 – Bequests, Etc., to Surviving Spouse The QDOT must have at least one U.S. citizen trustee (or a domestic corporation trustee) who can withhold estate tax from distributions of principal.7Office of the Law Revision Counsel. 26 USC 2056A – Qualified Domestic Trust Estate tax then gets collected either when principal comes out of the trust or when the surviving spouse dies. If the surviving spouse becomes a U.S. citizen before the estate tax return is filed and was a U.S. resident the whole time after death, the QDOT is not required.
Portability of the Unused Exclusion
If the first spouse to die does not use the full $15 million exclusion, the leftover amount, called the deceased spousal unused exclusion (DSUE), can transfer to the surviving spouse. With portability, a surviving spouse can carry a combined exclusion of up to $30 million in 2026.5Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax
Portability is not automatic. The executor must file Form 706, the federal estate tax return, to make the election, even when no estate tax is owed.8Internal Revenue Service. Instructions for Form 706 Families miss this constantly because when the first spouse’s estate is well under the exclusion there seems to be no reason to file. Without the return, the unused exclusion disappears. The IRS does allow a late portability election if Form 706 is filed within five years of the date of death for estates that were not otherwise required to file.9Internal Revenue Service. Revenue Procedure 2022-32 After five years, that option is gone.
The Double-Tax Problem on Traditional IRAs
An IRA in a taxable estate can be taxed twice. First the estate tax takes a cut when the account is included in the gross estate above the exclusion. Then income tax takes another cut when the beneficiary actually withdraws the money. A Traditional IRA funded entirely with pre-tax dollars has never been taxed, so every dollar a beneficiary pulls out is ordinary income at their personal rate. A 40% estate tax layered on top of federal income tax rates above 35% can consume well over half the account.
Congress softens this with a deduction called Income in Respect of a Decedent (IRD). A beneficiary who receives IRA money that was subject to estate tax can deduct the portion of the estate tax attributable to the IRA on their own income tax return.10Office of the Law Revision Counsel. 26 USC 691 – Recipients of Income in Respect of Decedents The deduction reduces the combined bite but does not eliminate it.
Inherited Roth IRAs sidestep the income tax half of the problem. Because the original owner already paid tax on the contributions, qualified distributions to a beneficiary come out income-tax-free as long as the Roth was open for at least five years before the owner’s death.3Internal Revenue Service. Retirement Topics – Beneficiary The Roth is still included in the gross estate at full value, so it faces estate tax above the exclusion. But the absence of income tax on withdrawals is what makes Roth conversions such a common tool for taxable estates.
What the Beneficiary Deals With After Death
The SECURE Act changed the distribution rules sharply. Most non-spouse beneficiaries who inherit an IRA from someone who died in 2020 or later must empty the account by the end of the tenth year after the owner’s death.3Internal Revenue Service. Retirement Topics – Beneficiary The old stretch-over-a-lifetime approach is gone for most heirs.
A narrow category 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 the adult children who are the most common IRA beneficiaries, must fit all distributions into that 10-year window. For a large Traditional IRA, the compressed schedule forces the beneficiary to report substantial income in those years and can push them into higher brackets.
Strategies That Reduce the Estate Tax Hit
Leaving the IRA to Charity
An IRA left to a qualified charity generates a full estate tax deduction for the amount transferred, effectively pulling the IRA out of the taxable estate.11Office of the Law Revision Counsel. 26 USC 2055 – Transfers for Public, Charitable, and Religious Uses The charity also pays no income tax on what it receives, so the double-tax problem disappears. If you plan to leave money to charity in any case, directing the IRA there and leaving other assets (which get a stepped-up basis at death) to family members is usually the more efficient allocation.
A Charitable Remainder Trust offers a middle path. The charity receives what remains after a term of years or the beneficiary’s life, and the estate takes a partial charitable deduction based on the projected remainder. Because the trust itself is tax-exempt, IRA assets can be liquidated inside it without triggering immediate income tax.
Roth Conversions Before Death
Converting a Traditional IRA to a Roth during your lifetime means paying income tax now on the converted amount. That tax payment shrinks the taxable estate, and the Roth then grows and distributes to heirs free of income tax. For someone whose estate is likely to exceed the exclusion, paying income tax now at known rates is often cheaper than paying both estate tax and income tax later. The result depends on current and future tax brackets, the growth rate, and life expectancy after converting.
Credit Shelter and Disclaimer Trusts
Before portability, the standard way to use both spouses’ exclusions was a credit shelter trust: at the first death, assets up to the exclusion fund the trust and the rest passes to the surviving spouse under the marital deduction. Portability has reduced the need for these structures, but they still protect assets from the surviving spouse’s creditors and keep future appreciation out of the surviving spouse’s estate. A disclaimer trust gives the surviving spouse the choice to refuse some portion of the inheritance and let it flow into a trust, which allows the family to assess the tax picture after the first death and decide how much to shelter. Funding either structure with IRA assets requires careful coordination between the beneficiary form and the trust terms.
State Estate and Inheritance Taxes
The federal exclusion is high enough that most estates owe no federal tax. State taxes are a different story and often get overlooked. Roughly a dozen states and the District of Columbia impose their own estate tax, with exclusion thresholds that can start at $1 million. A separate handful of states impose an inheritance tax, where the beneficiary pays based on their relationship to the deceased rather than the estate’s total value. One state imposes both.
IRA values are generally included in the state taxable estate the same way they are federally. Under an inheritance tax, spouses and children are often exempt or taxed lightly, while more distant relatives and unrelated beneficiaries can face rates reaching 16%. An IRA that is fully sheltered from federal estate tax can still trigger a real state tax bill, particularly for non-spouse beneficiaries who have neither the marital deduction nor the close-relative exemption.
Filing Deadline for Form 706
When an estate tax return is required, or when the executor is filing solely to preserve portability, Form 706 is due nine months after the date of death.8Internal Revenue Service. Instructions for Form 706 A six-month filing extension is available, but any tax owed is still due at nine months unless a separate payment extension is granted. The failure-to-file penalty is 5% of the unpaid tax per month, capped at 25%.12Internal Revenue Service. Failure to File Penalty When a large IRA has pushed the estate above the exclusion, those percentages turn into serious money fast. Filing on time, even with estimated values on certain assets, almost always beats filing late.