Spouses that inherit a retirement account when they are under age 59.5 have choices. They can choose to assume the inherited account as their own or elect to establish a beneficiary IRA. Before making this decision, it’s important to assess whether you’ll need to withdraw funds before age 59.5 in order to avoid the 10% early withdrawal penalty.

My professional focus is retirement planning for individuals over age 55. Please visit our website or reach out for a complimentary planning session.

Ted Erhart, CFP®
Financial Planner
Anoka, Minnesota

Disclaimer: Since we don’t know your specific situation, none of this information should be construed as tax, legal, financial, insurance, financial advice or other advice and may be outdated or inaccurate. It is your responsibility to verify all information yourself. This content is prepared for entertainment purposes only. If you need advice, please contact a qualified CPA, attorney, insurance agent, financial advisor or the appropriate professional for the subject you need help with. Ted Erhart cannot be held liable for any use or misuse of this content….(read more)

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If you are a spouse who has inherited an IRA from your partner, you may be subject to a 10% penalty if you withdraw funds from the account before you reach the age of 59 1/2. However, there are ways to avoid this penalty and still access the funds in the account. Here are some tips to help you avoid the 10% penalty on your inherited IRA.

1. Rollover the IRA: One way to avoid the 10% penalty is to rollover the IRA into a new account in your name. This will allow you to keep the tax-deferred status of the account, while also allowing you to access the funds without a penalty.

2. Take Substantially Equal Periodic Payments: You can also avoid the 10% penalty by taking Substantially Equal Periodic Payments (SEPPs). This option allows you to withdraw funds from the account in equal installments over a period of time. This option is only available if you have not yet reached the age of 59 1/2.

3. Use the 72(t) Distribution: The 72(t) Distribution is another way to access funds from your inherited IRA without incurring the 10% penalty. This option allows you to withdraw funds from the account in equal installments over a period of time. This option is only available if you have not yet reached the age of 59 1/2.

4. Use the Five-Year Rule: The Five-Year Rule allows you to access the funds in the account without incurring a penalty. This option requires that you withdraw all of the funds in the account within five years of the date of death of the original account holder.

5. Use the Life Expectancy Method: The Life Expectancy Method is another way to access the funds in the account without incurring a penalty. This option requires that you withdraw funds from the account over your life expectancy. This option is only available if you have not yet reached the age of 59 1/2.

By following these tips, you can avoid the 10% penalty on your inherited IRA. However, it is important to consult with a financial advisor or tax professional before making any decisions about how to access the funds in your inherited IRA.