The spouse who inherits an IRA has a tremendously powerful choice. He/she can move the account into an inherited IRA to keep the tax shelter. Or he/she can choose to roll the account into his/her own IRA and restart the age-based calculations for potentially greater tax benefits.
By Stephen K Lehnardt
The sorts of things an IRA-inheriting spouse ought to think about don’t make the headlines quite as often. (And can seem really dull.) However, DailyFinance offered a helpful guide a short time ago in an article titled “When A Spouse Inherits An IRA.”
The big deal is that a spouse has more age-based options than a non-spouse inheritor like an adult child. A spouse also has different choices. For instance, a spousal IRA heir can either retitle the account into an inherited IRA or roll it into their own IRA. What to do depends a great deal on the age of the spouse that has passed and the age of the surviving spouse.
After all, age determines when and if you can take distributions, and likewise affects the amount in distributions to take. To roll the IRA into your own means to simply add the balances and treat it like a normal IRA from thereon out, taking distributions based on your own life expectancy when you hit age 70½. On the other hand, if it is kept as an inherited account, you might have to immediately start taking distributions (based upon the RMD of the deceased) if the account had already begun distributions. Indeed, just the difference between one account and two accounts is worthy of consideration.
The most important thing to do is have an experienced estate planning attorney “run the math” so you can see what might be the best decision. Should you balance between income and savings? How much money do you need, and how soon, for retirement and medical costs? Depending upon the age and needs of the inheriting spouse, you might consider where the IRA is eventually going. Will you need the money in your lifetime or will you also leave it behind? How ought you to structure that?
For more information in Liberty, MO and the Kansas City Area about planning effectively for your IRA assets and other estate planning goals, and to access free information and tools to organize your estate, visit our elder law and estate planning website.
Reference: DailyFinance (April 22, 2014) “When A Spouse Inherits An IRA”