# Spend $40,000 From IRA vs Brokerage for Kids

> Retirees choosing between IRA and brokerage accounts face a tax trap for heirs.
- Title: Spend $40,000 From IRA vs Brokerage for Kids · 24/7 Wall St.
- Summary: Retirees choosing between IRA and brokerage accounts face a tax trap for heirs. Retirees spending $40,000 yearly from IRA first leave $300,000 brokerage…
- Keywords: ira, brokerage account, tax law, step-up basis, inherited assets, retirement accounts, tax bill, Spend, 000, Brokerage, Kids, 24/7 Wall St.
- Source: 24/7 Wall St. — https://247wallst.com/personal-finance/2026/10/19/spend-40000-a-year-from-the-ira-and-leave-the-300000-brokerage-account-alone-and-the-kids-inherit-it-with-every-gain-erased-spend-the-brokerage-first-to-save-the-ira-and-they-inherit-a-ten-y
- Author: David Beren
- Published: 2026-10-19T13:07:08+00:00
- Read time: 1 min
- Topics: ira, brokerage account, tax law, step-up basis, inherited assets, retirement accounts, tax bill
## Retiree's Tax Account Choice
A retiree with a tax-deferred IRA and $300,000 taxable brokerage account needs $40,000 yearly.
## Standard Advice vs Tax Reality
Standard advice says spend taxable money first to let IRA grow tax-deferred, but tax bill determines inheritance.
## Inherited Brokerage Gains Disappear
Inherited brokerage gains disappear with step-up basis, so children inherit tax-free appreciation.
## Inherited IRA Has Ten-Year Deadline
Inherited IRA must be emptied by the end of the 10th year after death, except for surviving spouses.
## Tax Bill Difference
Spending brokerage first leaves $300,000 IRA balance, adding $30,000 taxable income per year for heirs.
## Tax Impact for Heirs
For a married heir in the 22% federal bracket, spending brokerage first adds $6,600 yearly tax bill over ten years.
## When IRA Spending Wins
Retirees with lower tax rates benefit from IRA spending first, as it avoids step-up basis loss.
## Three Numbers to Check
Brokerage cost basis, heir's tax bracket gap, and retiree's 12% bracket room decide the order.
## Tax Trap for Heirs
Spending brokerage first creates a ten-year tax bill for heirs, erasing all gains.
## Key takeaway

Retirees spending $40,000 yearly from IRA first leave $300,000 brokerage account untouched, so kids inherit it tax-free with step-up basis but face a ten-year tax bill if brokerage is spent first.