Beneficiary Options for Spouses
My client recently passed away at age 50, leaving a wife who is approx that same age. She was named beneficiary of both of his IRAs. She may end up needing some of the funds to meet living expenses.
Wouldn’t it be better to leave the accounts in the decedent’s name in the event she needs the money rather than retitling either or both? Retitling would just cost her a 10% penalty if she needs to take a distribution prior to her age 59 1/2? Keeping the IRA titled in his name seems to offer her the most flexibility in taking distributions. There doesn’t seem to be much compelling reason ever to retitle, unless the decedent is drastically older than the spouse.
Also, can a spousal beneficiary who elects not to retitle the account in her name change custodians via a trustee-to-trustee transfer while still maintaining her deceased husband’s ownership of the account?
Permalink Submitted by Alan Spross on Tue, 2009-07-14 20:30
Scott,
She must re title the account, the question is whether to maintain it in beneficiary form or assume ownership. In this situation, it is better to retain the account in beneficiary form, under which she can take distributions prior to age 59.5 without penalty. In addtion, she does not HAVE to take RMDs for 20 years, not until the year her husband would have reached 70.5. Once she reaches 59.5, she should assume ownership of the account or roll the funds over to her own account.
She should also name a successor beneficiary on the IRA ASAP in case she were to pass. SInce she still has not reached RMD age, her beneficiaries would be considered to be inheriting from the IRA owner, meaning that they would get their own life expectancy stretch.
She can only change custodians on the inherited IRA by direct transfer of the account. However, she can also take distributions from it and roll them over to her own IRA as long as she understands that her own IRA cannot be touched prior to 59.5 without penalty unless she starts a 72t plan. It is best to avoid the 72t plan and it’s pitfalls by keeping the amount she may need in the inherited format until 59.5. Finally, she can also convert amounts from the spousal inherited IRA to her own Roth IRA if that makes sense for her.