When planning for a disabled child’s inheritance, parents and guardians face complex financial decisions. One is particularly impactful: whether to convert a traditional individual retirement account (IRA) to a Roth IRA. Understanding how tax laws, government benefits, and inheritance issues intersect is critical to making an informed decision.
Let’s explore why converting your IRA to a Roth might be a wise move for securing your disabled child’s financial future.
The End of “Stretch” IRA Rules
Before the SECURE Act of 2019, beneficiaries of inherited IRAs could take distributions over their lifetimes. By doing so, families could preserve more of their inherited wealth because the withdrawals were smaller and taxed at potentially lower rates over time.
The SECURE Act abolished stretch rules for most nonspouse beneficiaries, requiring them to fully deplete inherited IRAs within 10 years and pay taxes on distributions.
Eligible Designated Beneficiaries (EDBs) represent a significant exception to the standard rules regarding required minimum distributions (RMDs). EDBs are allowed to stretch their RMDs over their lifetime.
The criteria for EDB status generally include:
Surviving spouse: A surviving spouse of the account holder.
Children: Any child of the account holder who is still a minor at the time of the account holder’s death.
Disabled individuals: Individuals determined to be disabled under the Internal Revenue Code.
Chronically ill individuals: Beneficiaries who are considered sick chronically can also qualify.
Other dependents: Individuals not over 10 years younger than the account holder who are dependents of EDBs.
Important note about trusts and EDB status: When a disabled individual qualifies as an EDB, this status – and the valuable lifetime stretch provision – can be preserved even when the IRA is left to a properly structured special needs trust.
To maintain EDB treatment, the trust must be established for the exclusive benefit of the disabled beneficiary and meet specific IRS requirements.
The Role of Special Needs Trusts
For disabled individuals relying on means-tested government programs like Supplemental Security Income (SSI) or Medicaid, maintaining eligibility requires careful financial planning. Income and asset limits dictate whether a person qualifies for these essential benefits.
Naming a disabled individual as the beneficiary of an IRA can jeopardize their benefits because of the income generated by required distributions. To resolve this issue, many families use a special needs trust to protect benefits while providing financial support.
The taxation landscape changes dramatically when IRAs are left to a trust. Trusts are subject to compressed income tax brackets, reaching the highest tax rate (37 percent in 2025) at a mere $15,650 of taxable income. Even a modest IRA can quickly push a trust into these punitive tax rates, significantly reducing the funds available to support the beneficiary.
In stark contrast, the income tax brackets for individuals are structured to allow much higher thresholds before reaching the same top rate. In 2025, individuals generally are not subject to the 37 percent tax rate until their taxable income exceeds $578,125 ($693,750 for those who are married and filing jointly).
Benefits of Roth IRA Conversions
Converting a traditional IRA to a Roth IRA can mitigate these tax challenges.
Here’s how.
Tax-Free Distributions
Unlike traditional IRAs, Roth IRAs are funded with post-tax dollars. These distributions can only be tax-free if the account has been held for at least five years and the account holder is over age 59½. Roth IRAs offer the potential for tax-free growth of earnings.
For a disabled beneficiary with a long-life expectancy, this benefit magnifies over time.
Lifetime Stretch for EDBs
An EDB inheriting a Roth IRA account can stretch over their lifetime. This offers a powerful advantage, allowing the funds to grow and be accessed without eroding their value through taxes.
Preservation of Government Benefits
When a Roth IRA designates a special needs trust as its beneficiary, the account’s earnings continue to grow tax-deferred, and qualified withdrawals do not incur income tax. This structure provides the trustee with maximum flexibility to manage the beneficiary’s access to government benefits without jeopardizing eligibility.
While these distributions don’t create taxable income, the trustee must still carefully manage them since any funds distributed to the beneficiary could affect eligibility for programs such as Medicaid or SSI. Combining Roth distributions with proper trust administration allows optimal use of funds while maintaining essential government benefits.
Consult with a financial advisor or benefits specialist familiar with the specific government benefits programs to ensure that distributions do not jeopardize the beneficiary’s access to essential support.
Avoiding Compressed Trust Tax Brackets
Converting to a Roth IRA eliminates the issue of high trust tax rates. Even if the trust receives the distributions, they are not subject to income tax, preserving more funds for the disabled beneficiary’s needs.
Other sources of taxable income within the trust — like investment gains or taxable gifts — could still push it into higher tax brackets. This possibility should be accounted for when structuring the trust's financial strategy.
How We Can Help
At Canonico Wealth Management, we understand that every family’s situation is different — and when it comes to Special Needs Planning, there’s no room for one-size-fits-all solutions. If you have a child with a disability, thoughtful inheritance planning is critical. Converting a traditional IRA to a Roth IRA can be a smart strategy to help plan for your loved one’s financial future while protecting access to essential government benefits. Let’s sit down, review your options, and build a plan you can feel confident about — now and for years to come
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal professional.
“Stretch IRA” is a marketing term implying the ability of a beneficiary of a Decedent’s IRA to withdraw the least amount of money at the latest allowable time in order to maintain the inherited IRA assets for the longest time period possible. Beneficiary distribution options depend on a number of factors such as the type and age of the beneficiary, the relationship of the beneficiary to the decedent and the age of the decedent at death and may result in the inability to “stretch” a decedent’s IRA.
Illustration values will greatly depend on the assumptions used which may not be predictable such as future tax laws, IRS rules, inflation and constant rates of return. Costs including custodial fees may be incurred on a specified frequency while the account remains open. Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
This material was prepared for Gwen Canonico's use