55 Year Old Deceased Spouse
Have a client who passed away at age 55 with balances in an IRA and pre-tax 401k. Her spouse is 62. Due to his age versus hers, what are the advantages of keeping all her assets in a beneficiary IRA for his benefit versus rolling over all the balances into his own IRA? If we do a beneficiary IRA, he can still have access and avoid the 10% tax penalty. However, when he turns 70 1/2 will he need to include her balances for RMD calculations or will the RMDs be based upon her age of turning 70 1/2? Trying to figure out the best course of action for him. Thank you for your help.
Permalink Submitted by Alan - IRA critic on Fri, 2017-04-07 23:49
There is only one benefit to keeping this IRA as an inherited IRA, and that is not having to start RMDs until the year his spouse would have reached 70.5. He would therefore have 7 additional years in which no RMD was required. If he is going to need money from that inherited account anyway, he might as well roll it over to his own IRA now. If he keeps it as inherited and forgets to roll it over 15 years from now, his own beneficiaries will lose much of their stretch and his own RMDs will be higher than if he owned the IRA. For the next 7 years there is no difference between inherited and owned. There are no RMDs for the next 7 years and there is no penalty on any distributions he needs to take since he is over 59.5. If he keeps it inherited he also needs to name his own successor beneficiary.
Permalink Submitted by Todd Martin on Sat, 2017-04-08 02:07
Thank you Alan. I appreciate your expertise.