If He Rejects a $300,000 IRA in Writing Within Nine Months, It Can Skip Him and Pass to His Children Without the IRS Treating It as a Gift

A $300,000 IRA can create a hidden tax hit for the wrong heir, potentially costing tens of thousands before the money ever reaches the next generation. In some cases, all it takes to avoid that outcome is a written refusal filed before a firm deadline that many beneficiaries never learn about.

If your father left you his traditional IRA and you are in your highest-earning years, the inheritance could trigger tax at your top marginal rate. If the account is worth $300,000 and you do not need it, a qualified disclaimer allows you to reject the inheritance in writing. The IRA then passes to the next beneficiary in line, often your children, and the IRS does not treat that transfer as a gift from you.

How a Refusal Can Move the Account to the Next Generation

A disclaimer is a formal way to decline an inheritance. Under federal law, the property is treated as though it had never been transferred to the person who declined it. In many states, the law effectively treats that person as if they had died before the original owner, allowing the asset to pass directly to the next beneficiary.

Treasury regulations describe this outcome as an example of a valid disclaimer (26 CFR 25.2518-2(e)). Because you never owned the account, you also never gave it away. By contrast, if you first took the money and then transferred it, you would owe income tax before making any gift, and any amount above the annual exclusion per recipient would have to be reported.

What Section 2518 Requires

The governing rule is found in 26 U.S. Code § 2518. Under subsection (b), the refusal must be permanent and unconditional, and all of the following must be true:

• The refusal is made in writing.
• The transferor’s legal representative or the holder of legal title receives it within 9 months of the transfer that created the interest. For an IRA, the title holder is usually the custodian, and the period begins when the account owner dies.
• You have not accepted the interest or any benefits from it.
• The property passes without any direction from you to the decedent’s spouse or to someone other than you.

The Beneficiary Form Controls Where the Money Goes

The IRA beneficiary designation form determines who receives the account, regardless of your personal preference. Your children will receive it only if they are listed as contingent, or backup, beneficiaries, or if the account paperwork or your father’s will directs it to them. Without a named contingent beneficiary, the custodian’s default rules may send the money to the estate. If an estate inherits an IRA and the owner died before the required beginning date, the 5-year rule can apply and compress the withdrawal schedule.

If the account would circle back to you as an heir, the disclaimer may fail for that share (26 CFR 25.2518-2(e)(3)). Before taking any action, review the beneficiary form carefully. For parents, naming contingent beneficiaries is what makes this planning option possible.

Common Mistakes That Can Ruin a Disclaimer

Treasury regulations treat using the property, accepting dividends or interest, or telling others how to act on it as signs that you have accepted the asset (26 CFR 25.2518-2(d)(1)). Retitling the IRA in your own name or choosing new investments can also jeopardize the disclaimer. Required withdrawals are handled more leniently.

In Revenue Ruling 2005-36, the IRS said taking a required distribution counts as acceptance only of that portion, as later explained in an IRS letter ruling, so the rest may still be disclaimed. You can also disclaim only part of the account: § 2518(c)(1) treats a refusal of an “undivided portion” as qualified.

Why a Lower Tax Bracket Can Save a Large Sum

Most non-spouse beneficiaries must empty an inherited IRA by December 31 of the year that includes the 10th anniversary of the owner’s death. Your children would inherit whatever time remains on that clock. If the owner died on or after the required beginning date, beneficiaries must also take annual distributions during that period (Publication 590-B). Grandchildren do not qualify for the minor-child exception, which applies only to a child of the employee who has not reached majority.

For 2026, the 35% tax bracket begins at $256,225 of income for single filers, while the 12% bracket begins above $12,400. If the full $300,000 were taxed at 35%, the bill would be $105,000. At 12%, it would be $36,000. That difference is $69,000. The exact result depends on each heir’s other income and the timing of withdrawals.

The kiddie tax can erase that advantage. IRA withdrawals are treated as unearned income under § 1(g)(4). Children under 18, and some 18-to-23-year-olds who do not earn enough to cover half their own support, can be taxed at a parent’s rate on unearned income above $2,700, the 2026 threshold, if either parent is alive. In that situation, the strategy works best when the children are young adults with modest income.

Other Family Uses for Disclaimers

A surviving spouse may disclaim an inheritance to children so more of the estate can use the deceased spouse’s exemption, which is $15,000,000 for 2026 deaths. Some people also use disclaimers to keep assets out of reach of their own creditors, although creditor protection differs by state. Medicaid may treat a disclaimer as a transfer of assets and impose a penalty period.

One Document, One Deadline

A disclaimer cannot be undone, so it is wise to work with an estate attorney who can review your state’s rules. Before touching the account, and well before nine months have passed since the account owner’s death, obtain a copy of the beneficiary designation form. That single page determines whether the money can reach your children, and it is one of the key documents covered in a broader estate-planning checklist.