When a Spouse Inherits an IRA

When a Spouse Inherits an IRA

Dear Garden State Trust:

Before he died, my husband rolled his $1 million 401(k) account into an IRA, naming me as surviving beneficiary. Now he has died, and I’m not sure what to do next.

—Newly Widowed

Dear Newly:

You need to consult with a tax attorney or an accountant about your inherited IRA. This is too important to try to handle on your own.

But I can give you some background information that may help you when you meet with your professional advisors. A surviving spouse has three options to consider for an inherited IRA:

  • roll the funds over into an IRA that the spouse owns;
  • elect to make the inherited IRA the spouse’s IRA
  • proceed as the beneficiary of the IRA instead of its owner.

Options 1 and 2 have a similar practical effect, but involve different procedures and paperwork to make it happen.

Your best choice will depend upon your age, your husband’s age at death, and what you hope to do with the IRA. Making the IRA your own means that the required minimum distribution (RMD) rules will be governed by your age—no distributions required until you reach age 72. If you are younger than that age and want to maximize your deferral, you will likely choose the rollover or the election to make the IRA your own.

But what if you are already 72, and your husband was 67 when he died? With a rollover you’ll have to start RMDs right away, but as beneficiary you could wait five years for distributions to begin, until the year your husband would have reached age 72. That’s a circumstance where remaining a beneficiary could be preferable.

There are time limits for making these choices, so don’t delay in seeking professional tax advice.

You also may need some investment supervision for so large a sum. That’s where we come in. We provide investment management services for large IRAs, as well as for taxable portfolios. I will be pleased to meet with you to discuss our qualifications in this regard in more detail.

Do you have a question concerning wealth management or trusts? Send your inquiry to contact@gstrustco.com

(September 2022)
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