A $300,000 inherited house arrives tax-free via the step-up in basis, while a $300,000 traditional IRA can cost heirs $72,000 or more in federal taxes.

Directing IRAs to lower-bracket heirs or charities and step-up assets to high earners can preserve tens of thousands without changing the dollar split.

Beneficiary designations on IRAs override any will, so a stale form naming an ex-spouse can silently redirect the entire account.

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Two heirs, two $300,000 assets, two very different tax bills. The house arrives clean, but the IRA arrives with the IRS as a silent co-beneficiary.

Here's the split the tax code creates, and the practical question every parent with both kinds of wealth should answer before writing anything down.

An heir who inherits appreciated property takes a basis equal to the value at the date of death. That's the step-up. If your parents bought the house for $60,000 in 1985 and it's worth $300,000 today, the $240,000 of appreciation simply vanishes for income-tax purposes. A prompt sale at $300,000 produces little or no taxable gain.

For scale, the S&P CoreLogic Case-Shiller U.S. National Home Price Index sits at 336.7 as of June 2026, versus a January 2000 base of 100, so a lot of family homes carry embedded gains that would be brutal without the step-up.

A traditional IRA gets no basis adjustment. The heir owes ordinary income tax on every dollar withdrawn, stacked on top of their own salary, under the ten-year distribution rule that applies to most non-spouse beneficiaries.

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Treat the headline as illustrative. Assume a 45-year-old heir already earning roughly $150,000, married filing jointly, inheriting a $300,000 traditional IRA in 2026. Under the SECURE Act's ten-year rule, the balance must be fully distributed by the end of the tenth year after death.

Spread $300,000 evenly across ten years and each $30,000 withdrawal lands squarely in the 24% federal bracket on top of wages. Federal tax on the IRA distributions alone: about $72,000, before any state income tax. Concentrate the withdrawals into the final year and a chunk gets pushed into the 32% or 35% bracket, easily costing $90,000 or more.

The actual cost depends entirely on the heir's own bracket in the years they withdraw. An heir in the 12% bracket might owe closer to $36,000 federal. A high-earning heir in the 35% bracket could owe $105,000. Same $300,000 IRA, wildly different net inheritance.

This is where estate planning earns its fee. Point the pretax IRA toward the lower-bracket heir, or toward a charity, which pays no income tax on it. Point the step-up assets toward the higher-bracket heirs.

Consider two adult children: one is a public-school teacher in the 12% bracket, the other is a surgeon in the 35% bracket. Splitting the house and the IRA 50/50 feels fair but leaves money on the table. The surgeon nets far less per dollar of IRA than the teacher would, and both would net roughly the same after-tax value from the house.

Directing the IRA to the teacher and the house to the surgeon can preserve tens of thousands of dollars for the family without changing the headline dollar split at all. A charitable bequest of the IRA is even cleaner: the charity receives 100 cents on the dollar because it owes no income tax.

A Roth IRA changes the calculus. The ten-year clock still applies, but qualified withdrawals are not taxable. A $300,000 inherited Roth is closer in spirit to the inherited house than to the traditional IRA. High-bracket heirs are excellent recipients of Roth dollars for exactly that reason.

One procedural point that undoes more estate plans than any other: the beneficiary designation on the retirement account, not the will, controls who receives the IRA. A stale form naming an ex-spouse or a deceased sibling overrides every carefully drafted paragraph in the trust. Pull the beneficiary form on every IRA, 401(k), and annuity before the next holiday dinner (we put the full cleanup checklist, titling and beneficiary forms included, in a free estate guide here).

Taxes are half the story. With the 10-year Treasury yield at 4.78% as of September 4, 2026, an inherited IRA left invested for a decade continues to compound. The ten-year rule sets only the outer deadline; the withdrawal schedule inside it remains flexible. Timing distributions to low-income years, sabbaticals, gap years, or early retirement can shave the effective rate meaningfully.

Which parent should own which account, whether to convert some traditional dollars to Roth before death, and how to word the beneficiary form are the kind of decisions worth running once with a fiduciary advisor or CPA who sees the whole balance sheet.

This article is for informational purposes only and is not tax, legal, or investment advice. Consult a qualified tax professional about your specific situation.

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