Beneficiary IRA vs Surviving Spouse Own IRA

Submitted by Avo Mavilian on Tue, 2023-02-07 19:12

Young client in his 30’s passed away with a ROTH IRA (more than 5 years) that had the spouse, also in her 30’s, as named beneficiary.

Options we are contemplating are taking it as a Beneficiary/Inherited IRA, or set up her own ROTH and roll it into her new IRA.

If we roll into her new IRA, and she decides she needs distributions a few years from now, are we in a new 5 year clock?

Permalink Submitted by Alan - IRA critic on Tue, 2023-02-07 20:48

The inherited IRA should be maintained as such until the surviving spouse reaches 59.5 because the inherited IRA is qualified (5 years + deceased) and all distributions would be tax free. Instead if she assumed ownership of the inherited Roth, she would be credited with his 5 year holding period, but HER age would apply, meaning that the owned Roth would not be qualified until she reached 59.5.
While maintaining the inherited Roth, she would have NO RMDs until the year her deceased spouse would have reached 75, therefore probably no RMDs by the time she reaches 59.5 when she should do the spousal rollover. Therefore, with these actions no taxes would ever be paid on Roth distributions.

Permalink Submitted by Avo Mavilian on Tue, 2023-02-07 20:56

Thank you!