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When someone dies, their assets are often passed down to their loved ones through inheritance. One asset that may be inherited is an individual retirement account (IRA). If your spouse has passed away and left you their IRA, there are some important things to keep in mind.

Firstly, it’s important to understand the different types of IRAs. There are traditional IRAs, which are funded with pre-tax dollars and grow tax-deferred until withdrawals are made in retirement. There are also Roth IRAs, which are funded with post-tax dollars and withdrawals are tax-free. Inherited IRAs can also be either traditional or Roth.

If you inherit a traditional IRA, you will be required to take required minimum distributions (RMDs) starting the year after your spouse’s death. These withdrawals are taxed as ordinary income. However, if your spouse was over age 70 ½ and had already begun taking RMDs, you will need to continue taking them based on their life expectancy or withdraw the entire balance within five years of their death.

Inheriting a Roth IRA works a bit differently. With a Roth IRA, there are no RMDs during the original owner’s lifetime, so there are no RMDs for you to take as the beneficiary either. However, if the Roth IRA was established less than five years before the original owner’s death, you may be subject to a penalty if you withdraw funds before reaching age 59 ½.

There are a few options for what you can do with an inherited IRA. You can take a lump sum distribution of the entire balance, but this will likely result in a large tax bill. You can also take RMDs based on your life expectancy, which can help to minimize the tax impact. Alternatively, you can disclaim the IRA, which means it will go to the next beneficiary on the list.

It’s important to review your options carefully and to seek the advice of a financial professional. Inheriting an IRA can be a complex process, but with the right guidance, you can ensure that you make the most of your inheritance and use it to secure your financial future.