The Irs Raised The 2027 Estate Exemption To $x Per Person. The 401(k) And Ira Balances That Count Toward It Are The Ones Most Families Forget To Add Up

The post The IRS Raised the 2027 Estate Exemption to $X Per Person. The 401(k) and IRA Balances That Count Toward It Are the Ones Most Families Forget to Add Up appeared first on 24/7 Wall St..

Every November the IRS releases its inflation adjustments, and the estate tax figure is the one that lets families relax. For anyone who dies in 2027, the federal estate tax basic exclusion rises to $15,480,000 per person, up from $15,000,000 in 2026, according to the IRS announcement dated Nov. 05, 2026.

That relief can come too soon. The exemption is measured against your gross estate, and the gross estate includes every dollar in a traditional 401(k) or IRA at its full pre-tax value. Families often skip those accounts when they add things up, because the money feels like retirement savings rather than part of the estate.

$15.48 Million Per Person, $30.96 Million Per Couple

The 2027 increase adds $480,000 of shelter. Under 26 U.S.C. § 2010(c)(3), the base amount is $15,000,000, indexed for decedents dying after 2026.

Married couples can stack exemptions through portability. A surviving spouse adds the “deceased spousal unused exclusion amount” under § 2010(c)(2)(B), so a couple can shelter up to $30,960,000 in total. The catch: the first spouse’s executor must file Form 706 to elect it, even when the estate owes nothing.

Above the exemption, the rate schedule tops out at 40% under § 2001(c). The annual gift exclusion also rises to $20,000 per recipient in 2027, up from $19,000.

Why Your 401(k) Counts Toward the Estate Exemption

The provision that draws retirement money into your estate is Section 2039. It includes any payment that a beneficiary receives “by reason of surviving the decedent” under contracts entered into after March 3, 1931. That’s language from the Depression era, and it still applies to every IRA and 401(k) beneficiary designation.

A beneficiary form keeps the account out of probate, but the account still counts toward the estate tax. Roth balances count too, and because Roth IRAs have no RMDs while the owner is alive, they can compound untouched until death. Traditional accounts now grow longer as well: RMDs start at 75 for anyone born in 1960 or later.

Among estate tax returns filed in 2024, 5,041 reported retirement assets, totaling $11,704,175,000. Households headed by someone age 55 to 69 hold 49.5% of all U.S. defined contribution pension and annuity wealth, per Federal Reserve data for 2026 Q2.

A $16.5 Million Estate That Looked Like $12 Million

Consider a composite: a widower who dies in 2027. His late wife’s executor never filed Form 706, so her unused exemption is gone. Here’s what he owns:

Leave out the retirement accounts and he counts $12,000,000, well under the line. Add the $4,500,000 in retirement money and he’s $1,020,000 over. At 40%, that excess produces a federal estate tax of $408,000.

Then a second layer of tax comes. His heirs still owe income tax on every 401(k) and IRA dollar they withdraw. The IRS cushions this double hit: beneficiaries can deduct the estate tax paid on any part of a distribution that is income with respect to a decedent, under § 691(c). Heirs must claim it on their own returns to get the benefit.

State rules can make this worse. Several states levy their own estate or inheritance taxes at thresholds far below the federal line, so a family that owes nothing to the IRS can still get a state bill.

Three Moves That Keep Retirement Accounts From Tipping an Estate Over

1. File Form 706 at the first death. With portability elected, our widower would have sheltered up to $30,960,000 (assuming his wife used none of her exemption), and his federal estate tax would be zero.
2. Name a charity as beneficiary on part of a traditional IRA. The estate takes a charitable deduction, and the charity pays no income tax on the withdrawal. Pre-tax IRA money is the most efficient money to leave to charity.
3. Consider a Roth conversion and gift strategically. The income tax you pay on a Roth conversion leaves the estate permanently. Annual gifts of up to $20,000 per recipient in 2027 reduce the estate further without touching the lifetime exemption.

Executors also have to watch the year-of-death RMD. A missed distribution triggers a 25% excise tax on the shortfall, which drops to 10% if it’s corrected within the window.

Midterm Politics Could Move the Line Again

The $15.48 million figure rises with inflation each year, but Congress can rewrite it. After this month’s elections, estate planners are already asking whether the 2026 midterm results should change estate plans. Track the IRS’s next annual inflation update in late 2027 and any tax bill that touches Section 2010 before then.

If adding your 401(k), IRA, and Roth balances to everything else puts you within a few million dollars of the line, run the numbers with a fiduciary advisor or estate tax attorney.

The post The IRS Raised the 2027 Estate Exemption to $X Per Person. The 401(k) and IRA Balances That Count Toward It Are the Ones Most Families Forget to Add Up appeared first on 24/7 Wall St..