When it comes to taking distributions from a traditional IRA, a spouse has more flexibility than a non-spousal beneficiary. As a spouse, you have four options. Your first option is to take a lump sum distribution and pay the taxes all at once. Your second option is to treat the IRA as your own and it will be as if you have always owned the account. Your third option is to open an inherited IRA in your name and use the life expectancy method. And your final option is to open an inherited IRA in your name and use the 10-year method.

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#inheritedIRA

00:00 – Intro
00:30 – Traditional IRA – Spouse
04:18 – Multiple beneficiaries
04:40 – Roth IRA – Spouse
06:53 – IRA – Non-Spouse exceptions
07:55 – IRA – Non-Spouse
10:15 – IRA – Non-Spouse distribution due date
10:25 – IRA inherited through a Will or Estate
10:40 – How to set-up an Inherited IRA
11:10 – Various rules for Inherited IRA
12:30 – Tax penalty
13:15 – Outro

You can treat the IRA as your own only if you are the sole beneficiary of your spouse’s IRA. You can either designate yourself as the account owner by doing a spousal transfer OR you can rollover the account into your own IRA. If it’s a taxable distribution, you can roll it over to a qualified employer plan, a 403(a), a 403(b), or a 457(b) plan. So, within 60 days of receiving the distribution, you will deposit or transfer the funds from your spouse’s IRA into your own IRA. You will not have to take required distributions until you reach YOUR required distribution age. So, if your deceased spouse was OLDER than you, and you want to delay required distributions, then you should choose to treat the IRA as your own. And as a side note, this is the most common option that widowed spouses choose.

Now, if your spouse was required to take a distribution before they died and they did not take it during the year of death, you will have to take the distribution that your spouse DID NOT take. You cannot rollover this distribution into your IRA and you will have to pay taxes on this distribution.

The drawback to treating the IRA as your own is if you make withdrawals before you reach age 59 1/2, you will have the 10% early withdrawal tax penalty. So, if you think you might need to take early withdrawals, you can rollover a PORTION of the funds into your own IRA and use an INHERITED IRA account for the portion that you might need to withdraw before you reach age 59 ½.

When you open an INHERITED IRA, you are classifying yourself as a beneficiary rather than treating your spouse’s IRA as your own. If you choose to be classified as a beneficiary and choose the life expectancy method, you will transfer the funds from your spouse’s IRA into a new Inherited IRA held in your name. If your spouse died BEFORE their required distribution begin date, you can either start taking required distributions by December 31 of the year following the year of the death of your spouse OR start taking distributions by December 31 of the year your spouse WOULD HAVE been required to start taking distributions. So, this method may be best if you are OLDER than your deceased spouse and you want to delay required distributions.

If you choose the life expectancy option and your spouse died AFTER they had already reached the date that they were required to take minimum distributions, then you will begin taking an annual distribution over your life expectancy OR over the remaining life expectancy of your spouse that was in effect at the time of death, whichever is longer. In this case, you must begin taking distributions no later than December 31 of the year following the death of your spouse.

If your spouse died before taking their required distribution during the year of death, you will have to take the distribution, that your spouse did not take, by December 31st of the year in which your spouse died.

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As an inherited IRA beneficiary, you may have questions about required minimum distributions (RMDs). These are confusing things you may not know about RMDs.

First, you must take RMDs from an inherited IRA each year, even if you are not yet 70 and a half years old. This is different from a traditional IRA, where you must start RMDs at that age. The amount of the RMD is based on your life expectancy and the balance of the account.

Second, you have a limited amount of time to take RMDs from an inherited IRA. If the IRA owner died on or after January 1, 2020, you have 10 years to distribute the entire account balance. If the IRA owner died before that date, you may have a longer timeframe based on certain circumstances.

Third, because RMDs are mandatory, failing to take them can result in significant penalties. The penalty for not taking an RMD is 50% of the amount that should have been withdrawn. This can be a costly mistake, so it’s important to stay on top of RMDs and make sure they are taken on time.

Fourth, RMDs from inherited IRAs are considered taxable income. This means you will need to pay income taxes on the amount of the distribution. Depending on your tax bracket, this could result in a significant tax bill.

Finally, there are some situations where RMDs may be waived or reduced. For example, if the IRA owner passed away before the age of 70 and a half, there may be no RMDs required. Additionally, if the inherited IRA is a Roth IRA, RMDs may not be required unless the account was inherited from a non-spouse beneficiary.

In conclusion, RMDs can be a complex topic, especially when it comes to inherited IRAs. It’s important to understand your obligations as a beneficiary and to make sure you stay on top of RMDs to avoid penalties and tax ramifications. Consider speaking with a financial advisor to help navigate the rules and develop a plan for managing RMDs.