Houston Families and Spousal IRA Heirships

A spouse who inherits an IRA has a choice. The surviving spouse can move the account into an inherited IRA to keep the tax shelter. Or she can choose to roll the account into her own IRA.

There are some unique rules that go into effect when an IRA is bequeathed and inherited. If a spouse is inheriting the IRA, they have extra leeway that’s worth putting to good use.

The sorts of things an IRA inheriting spouse ought to think about don’t make the headlines quite as often. However, DailyFinance offered a helpful guide a short time ago in an article titled “When A Spouse Inherits An IRA.”

You see, a spouse has more age-based decisions than a younger inheritor like an adult child. A spouse also has different choices. For instance, a spousal IRA heir can either retitle the account into an inherited IRA or roll it into their own IRA. What to do depends a great deal on the age of the spouse that has passed and the age of the surviving spouse.

After all, age determines when and if you can take distributions, and likewise affects the amount in distributions to take. To roll the IRA into your own means to simply add the balances and treat it like a normal IRA from thereon out, taking distributions based on your own life expectancy when you hit age 70½. On the other hand, if it is kept as an inherited account, you might have to immediately start taking distributions (based upon the Required Minimum Distribution of the deceased) if the account had already begun distributions. Indeed, just the difference between one account and two accounts is worthy of consideration.

The original article offers a few examples on the math that comes into play, and there are a few numbers to play with. In the end, you might say the decisions should come down on a few basics. First, the balance between income and savings. This is both a question of how much money do you need and how soon, especially for retirements and medical costs. Also, factor in taxes because traditional IRA distributions are taxable. Second, depending upon the age and needs of the inheriting spouse, you might consider where the IRA is eventually going. Will you need the money in your lifetime or will you also leave it behind? How ought you to structure that plan?

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Reference: DailyFinance (April 22, 2014) “When A Spouse Inherits An IRA”