The Legacy Strategy: Why Your Heirs Want Your Roth and Your Charity Wants Your IRA

When we talk about legacy planning in Land O' Lakes and Wesley Chapel, the conversation usually starts with a total dollar amount. But in 2026, the quality of the dollars you leave behind is just as important as the quantity.

If you want to maximize the impact of your life’s work, you need to understand the "Hierarchy of Gifting." Giving the right account to the right person can save your family tens of thousands in unnecessary taxes.

1. The Best Asset for Children: The Roth IRA

If you want to leave a tax-free legacy, the Roth IRA is the undisputed king.

• The Heir's Benefit: Under current IRS rules, most non-spouse heirs (like your children) must empty an inherited IRA within 10 years. With a Roth, those withdrawals are 100% tax-free.

• The 10-Year Growth: Your children can leave the money in the account for the full decade, letting it grow tax-free in the market before taking a final distribution.

• The Strategy: Prioritize keeping your Roth assets for your heirs. It is the cleanest, most efficient way to transfer wealth to the next generation.

2. The Best Asset for Charity: Pre-Tax IRAs (401k, 403b, 457b)

Your tax-deferred accounts are the worst assets for your children to inherit, but the best ones to leave to a 501(c)(3) nonprofit.

• The Tax Trap for Kids: When a child inherits a Traditional IRA or a USF 403(b), every dollar they withdraw is taxed as ordinary income. If they are in their peak earning years, the IRS could take 30% or more of that inheritance.

• The Charity Win: Charities are tax-exempt. If you name a local Tampa charity as the beneficiary of your IRA, they receive 100% of the value.

• The Strategy: By naming a charity as the beneficiary of your pre-tax accounts and leaving the Roth or brokerage accounts to your children, you effectively "evict" the IRS from your estate.

3. The "Tax-Planning Trap": The HSA

While a Health Savings Account (HSA) is a brilliant tool during your life, it is a poor asset to leave to your children.

• Immediate Taxation: Unlike an IRA, which has a 10-year window, an inherited HSA becomes fully taxable to a non-spouse heir in the year of your death.

• The Impact: This can result in a massive, one-time tax bill that wipes out a third of the account's value instantly.

• The Strategy: Use your HSA for your own medical expenses in retirement. If you want to leave a legacy, name a charity as the beneficiary of any remaining HSA funds—they’ll get the full amount, and your kids won't get the tax bill.

4. Don't Forget the "Step-Up"

For your standard brokerage accounts, remember that your heirs receive a Step-Up in Basis. If you bought stock for $10 and it’s worth $100 when you pass away, your children can sell it for $100 and pay $0 in capital gains tax. This makes taxable brokerage accounts the second-best asset for your children to inherit, right behind the Roth IRA.

The MADE Financial Difference

At MADE Financial Design, we don't believe in "one size fits all" estate plans. We help families in the Tampa Bay area look at their specific buckets of money to ensure their legacy is as tax-efficient as possible.

As a Fee-Only Fiduciary, our only goal is to make sure your wealth goes where you intended—to your family and your community, not the IRS.