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Jtmitch posted;

"I am considering rolling this over again, this time to a non-annuity Rollover IRA with Vanguard. What I don't fully understand is whether or not doing so would eliminate this problem -- in other words, do qualifed IRAs "step-up" or not? Are there any other pros and cons I should consider?"

TMFPixy is more qualified to answer this hopefully he will see it and answer.

From my understanding, Traditional IRA's do not permit step-up NOR do they permit cap gains for the heirs. And if you are over 70 1/2 and have begun Minimum Required Distributions, your heirs will have to take distributions per your decision.

No matter how your IRA is distributed to your heirs, your heirs will have to pay income tax on the distribution since the 401K or RollOver IRA was funded with before tax dollars. There are ways they can delay distribution which will shelter the yearly gains and dividends from income taxation. If you rollover to a Roth IRA and pay taxes now, I believe your heirs can shelter the inheritance by leaving it in the Roth IRA.

I hope this is correct and that it helps.

BGP

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