Spousal IRA Beneficiary

Submitted by brcwm on Fri, 2023-12-01 15:28

Spouse A passed away (age 64) and Spouse B is under 59.5. We are exploring the idea of her utilizing an inherited IRA instead of doing a spousal rollover. Just to confirm, is this correct to say? Specifically, the part about being able to do a spousal rollover once the funds are in an inherited IRA.

Surviving spouses who inherit an IRA have special options. If they are under 59 ½ and need access to the funds, setting up an inherited IRA allows them to withdraw money without a 10% early withdrawal penalty. They don’t need to take required minimum distributions (RMDs) until the deceased spouse would have turned RMD age (age 72-75). Later, typically after age 59½, they can choose to do a spousal rollover, transferring the inherited IRA into their own IRA without tax consequences. The only downside would be just that, RMDs before their own RMD age (assuming they were the younger spouse).



Submitted by Alan - IRA critic on Fri, 2023-12-01 16:12

  • Yes, your second paragraph is correct. A frequent error made by a younger spouse beneficiary is to assume ownership prior to age 59.5, which would result in a 10% penalty on distributions prior to 59.5.  Maintaining the IRA as inherited however can lead to beneficiary RMDs once the deceased spouse would have reached their RMD age, so if the deceased spouse was close to RMD age, the surviving spouse with an inherited IRA may have to take beneficiary RMDs until they reach 59.5 and assume ownership of the inherited IRA. This is a function of both their ages when the first spouse passes.
  • A sole spousal beneficiary can do a rollover to their own IRA anytime, but once they become the owner they cannot return to beneficiary status. The preferable method of assuming ownership by transfer (no distribution reported) now has age limits, after which the only way to acquire ownership is a distribution and rollover of amounts in excess of the beneficiary RMD for the rollover year.

Submitted by brcwm on Fri, 2023-12-01 16:41

Just to clarify on your comment:

…the surviving spouse will an inherited IRA may have to take beneficiary RMDs until they reach 59.5 and assume ownership of the inherited IRA.

If the surviving spouse transfers to an inherited IRA, does the surviving spouse have to wait until 59.5 to them assume ownership of the funds by rollover into their own IRA?  

Submitted by Alan - IRA critic on Fri, 2023-12-01 16:46

No, the surviving spouse can assume ownership right away, but if they do that any distributions needed will be subject to the 10% penalty until they reach 59.5. Maintaining the inherited IRA will eliminate that penalty, so most surviving spouses wait until 59.5 before assuming ownership.

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