When A Spouse Inherits An IRA

A spouse who inherits an IRA can do one of two things.

saving and retirement (Photo credit: 401(K) 2013)
saving and retirement (Photo credit: 401(K) 2013)

He or she can move the account into an inherited IRA to retain the tax shelter. Or the surviving spouse can roll the account over into his or her own IRA.

The decision, according to a story posted on dailyfinance.com, depends on whether the survivor has turned 59 1/2 and whether the deceased spouse had turned 70 1/2 before dying.

A spouse who is younger than 59 1/2 and who needs the money is better off staying a named beneficiary. That means the survivor must rename the account as an inherited IRA. In that way, the survivor can tap the account without penalty.

If the surviving spouse rolls the money over into his or her own IRA and then withdraws any of it, a 10 percent penalty will be paid until the person reaches 59 1/2.

A surviving spouse who is under 70 1/2 and doesn’t need the money should make the IRA his or her own, the story says. No minimum distributions will be required until the person turns 70 1/2.

If the surviving spouse makes the IRA his or her own it also affects heirs in a more positive way as they will be able to “stretch” the distributions over their lifetimes.

If you have questions about estate planning, feel free to call us for a consultation at (626) 696-3145.

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