Spouses who inherit IRAs have special benefits under IRS rules not available to non-spouse beneficiaries. Spouses may rollover an inherited IRA to their own retirement account or treat an inherited IRA as their own account. A spouse beneficiary must decide how to address an inherited IRA before distributions are received. This is especially important if the distribution is a minimum required amount of the deceased spouse. These required distributions cannot be rolled over---even by a spouse beneficiary.
Spouse beneficiaries may rollover inherited IRAs to their own IRAs or to any other qualified retirement account, such as one provided by an employer. The amounts in the inherited IRA thus become subject to tax rules as if the inheriting spouse had established the account for herself. No distributions are required from the inherited IRA. Instead, distributions are based on the rules for the surviving spouse. Required minimum distributions begin at age 70½. Tax penalties exist for distributions taken before age 59½ .
A surviving spouse is not required to rollover an inherited IRA. A spouse can treat an inherited IRA as his own account. He designates himself as the IRA owner with the financial institution that is custodian of the account. This is the default option under the tax rules if the spouse is the sole beneficiary with an unlimited right to withdrawals. A spouse will be automatically treated as the new owner of the IRA if he makes any contributions to the IRA, does not rollover the IRA or fails to take required distributions as a beneficiary.
As the IRA owner, the surviving spouse determines required minimum distributions based upon his age. Distributions are required if the surviving spouse is age 70½. The surviving spouse is not required to take distributions until he reaches that age. However, if the surviving spouse does take distributions, they are subject to early withdrawal penalties if he is not yet age 59½. Therefore, a spouse under age 59½ who desires distributions should take them as an IRA beneficiary instead of as account owner.
A spouse may elect to treat an inherited IRA as if she were a non-spouse beneficiary. The surviving spouse may take penalty-free distributions from the IRA based upon her life expectancy or may simply withdraw the entire account balance by the end of the fifth year after the IRA owner's death. No distributions are required until the end of the fifth year. However, if the spouse does not take annual distributions, the entire IRA must be withdrawn by the fifth year. Therefore, a spouse who does not desire distributions within five years---or wishes to minimize distributions that are required based upon her age---should treat the inherited IRA as her own account or roll over the IRA.
- Photo Credit Making a financial plan image by Allen Stoner from Fotolia.com
IRA Beneficiary Rules
The money distributed to a beneficiary wholly depends on whether the beneficiary is a spouse or a non-spouse.
Inherited IRA Vs. Beneficiary IRA
Rules for an Inherited Non-Spousal IRA; Print this article; Opening an Account. When someone passes away after naming you as the beneficiary...
Can You Rollover a 401k to a Spouse?
When you own a 401k plan, you are technically investing in a trust account that is qualified by the Employee Retirement Income...
Spousal IRA Rules
IRA Beneficiary Rules. When an IRA owner passes away, his IRA funds go to a designated beneficiary. ... A spousal Individual Retirement...
Taxes for an IRA Beneficiary
Taxes on IRAs are deferred if you are a spouse. A traditional IRA will be subject to taxation. But, the spouse of...
Options for a Non-Spousal Beneficiary of an IRA
While the surviving spouse inheriting an Individual Retirement Account (IRA) has multiple options, the choices allowed a non-spousal IRA beneficiary by the...
Why Must a Spouse Sign an IRA?
Federal regulations require that a surviving spouse is named as the primary beneficiary on your IRA. The reason has to do with...
Rules for an Inherited Non-Spousal IRA
Non-spouses who inherit individual retirement accounts (IRAs) don't have the range of options that spouses do. They cannot contribute money to the...
Who Gets Ex-Husband's IRA if a Beneficiary is Not Changed?
There are several factors that would determine who inherits an Individual Retirement Account, or IRA, in the event that a person dies...