Inherited Retirement Accounts - Surviving Spouses

Understanding Inherited Retirement Accounts

When you inherit a retirement account from your spouse, it is important to understand the rules that apply. A required minimum distribution (RMD) is the amount the IRS mandates to be distributed from an individual retirement account (IRA) or other retirement account on an annual basis, and this distribution is typically 100% subject to ordinary income tax rates. The primary factors that determine whether an RMD must be taken from the account, as well as the timing and requirements, are as follows: (1) the date the account holder passed away (2) the beneficiary’s relation to the deceased account owner, and (3) the type of retirement account inherited.

Outlined below are general rules for RMDs when a surviving spouse inherits a retirement account. We recommend working with your CPA to ensure you take the correct RMD as missed RMDs incur a 50% penalty.

Surviving Spouses

As the surviving spouse, you may treat the inherited account as your own by rolling it over to your own IRA, or you may roll the account into an inherited IRA (also called a Beneficiary IRA). The benefits of each option depend on the account owner’s age at death, your age, and whether you require account distributions for expenses.

If you roll your spouse’s retirement account to your own IRA, click here for the general FAQs about RMDs.

If you roll your spouse’s retirement account into an inherited IRA, click here for the general RMD rules for Inherited IRAs for Non-Spouse Beneficiaries.

If the deceased account owner had already begun taking RMDs, the deceased owner’s RMD must be distributed in the year of death. If the decedent had not withdrawn the entire RMD, the beneficiary must take the remaining RMD before transferring the decedent’s IRA.

Your Age

You are under age 59½ and need distributions from the account to meet living expenses. It may be preferable to roll the account to an inherited IRA, as you may take distributions without the 10% early withdrawal penalty.

You are under age 59 ½ and do not think you will need to take distributions. It may be preferable to roll the account into your own IRA. As your own IRA, you may delay taking RMDs until you reach age 72.

Account Owner’s Age

Account owner dies on or after the required date to begin RMDs. If you roll the account into an inherited IRA, the annual distributions can be stretched over the longer of your own life expectancy based on the Uniform IRS Table (based on your age each year) or based on the deceased owner’s life expectancy reduced by 1 each subsequent year. Distributions must begin no later than 12/31 of the year after the account owner’s death.

Account owner dies on or before the required date to begin RMDs. If you roll the account into an inherited IRA, the annual distributions can be stretched over your life expectancy based on the Uniform IRS Table (based on your age each year), and distributions must begin no later than 12/31 of the year the deceased account owner would have reached 72.

Roth IRAs

If you inherit a Roth IRA and want to take distributions from the account, you could roll it into an inherited Roth IRA and take distributions over the Life Expectancy Method, as you can always take more than the minimum required amount at any point. If the first RMD is inadvertently missed, the 5 Year Method is available, which is similar to traditional IRAs discussed below.

If you roll the Inherited Roth IRA account into your existing or new Roth IRA account, the assets are available based on the standard Roth IRA distribution rules. For more detail on distributions from a Roth IRA, click here.

Miscellaneous

Lump-sum distributions or taking the entire balance by the end of the fifth year following your spouse’s death are options for cash needs. However, remember that RMDs are the minimum amount that may be withdrawn annually; you may always withdraw more assets than the RMD amount.

Important Disclosure: This report is for informational purposes only. Opinions expressed herein are subject to change without notice. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified, or attested to, the accuracy or authenticity of the information. Nothing contained herein should be construed or relied upon as investment, legal or tax advice. All investments involve risks, including the loss of principal. Investors should consult with their financial professional before making any investment decisions. Past performance is not a guarantee of future results.

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