Spousal Rollover

Submitted by n2b on Wed, 2016-01-20 17:50

I read in the Slott Report mailbag that if the husband and wife have named each other as primary beneficiaries of their respective IRAs and after the first spouse dies, the survivor is likely to complete a spousal rollover, moving the decedent’s IRA into his/her own. The report goes on to say that this is not always the best move.

Could you please elaborate on the pros and cons of a spousal rollover and under what circumstances it is not advisable to do a complete spousal rollover. Thanks
n2b



Submitted by Alan - IRA critic on Wed, 2016-01-20 18:10

  • The classic case is when the surviving spouse in not yet 59.5 and will need money from the IRA. If they roll it over to their own there will be a 10% early withdrawal penalty, but if they maintain the account in inherited form there is no penalty.  Also, if the younger spouse passes first, a surviving spouse over 70.5 can AVOID RMDs if they retain the account in inherited form because they do not have to start RMDs until the year the deceased spouse would have reached 70.5. So if they do not need the money, they do not have to take distributions until that time.
  • A surviving spouse should carefully examine all the options and their impact before acting. While they can roll the IRA over anytime they wish, once that is done there is no going back to an inherited IRA.
  • The rollover does not have to be 100%. A surviving spouse can take a distribution from the inherited IRA and to the extent it is not an RMD can roll it over while keeping the rest of the account in inherited form. A surviving spouse that is NOT the sole beneficiary should create a separate inherited IRA by the end of the year following the year of death so they can be considered a sole spousal beneficiary, since some of the favorable RMD rules only apply to SOLE spousal beneficiaries.

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