Inherited IRA
Deceased husband was 18 months older than his wife. She is under the age of 59 1/2 and may need funds for expenses. Considering an inherited IRA but want to make sure if she passes away that the children can take advantage of the stretch provisions. What are the distribution options of an inherited ira naming non-spouse beneficiaries pre and post RMD compared to a traditional IRA? Would it be better to convert the inherited once she turns 59.5 to a traditional and not worry about the 18 month age difference?
Permalink Submitted by Alan - IRA critic on Tue, 2013-11-05 03:08
Yes, the rollover to her own IRA should occur after reaching 59.5. Here’s the longer version of why. The inherited IRA IS a traditional IRA (unless the IRA was a Roth IRA). If the surviving spouse may need to take distributions to live on, she should continue to maintain the IRA as inherited until age 59.5 rather than rolling it over to her own. Her distributions would then be penalty free. She has no RMD requirement until the year her husband would have reached 70.5, so that is several years in the future. Meanwhile, if she were to pass prior to that time, her children will be able to use their own life expectancies if they are named as successor beneficiaries. This all changes when husband would have reached 70.5 when her RMDs as beneficiary must begin, as the children at that time would have to continue the RMD schedule of their mother instead of their own life expectancies. To eliminate the risk of this happening, the surviving spouse should roll the inherited IRA over to her own name upon reaching 59.5. Distributions she needs after 59.5 will be penalty free and her RMDs as the owner would not start until age 70.5.