When you inherit an IRA from your spouse, you have a choice to make that other inheritors don't: you can roll over the assets into your own IRA. You can also transfer the assets into an Inherited IRA, as all other beneficiaries can. Depending on which option you choose, different RMD rules apply.
Option 1: Roll the inherited assets into your own IRA
If you choose to roll over the assets into your own IRA, you would base the timing and calculation on your own age using the IRS Uniform Life Expectancy Table (PDF).
The table assumes that distributions would extend over two lives: yours and a beneficiary 10 years younger than you. With this option, your RMD would be lower than if you transferred your assets to an Inherited IRA.
Choosing this option can be advantageous if:
- You have not yet reached age 70½ but your spouse had. It enables you to stretch out the tax-deferral of IRA assets by delaying distributions until you reach age 70½.
- You are over age 59½ and you may want to take distributions. Distributions from your IRA would not be subject to the 10% early withdrawal penalty.
Conversely, rolling the assets to your own IRA may not be advantageous if:
- You are under age 59½, and you intend to take a distribution from your IRA. You will be subject to the 10% early withdrawal penalty in your IRA but would not be subject to this penalty on an Inherited IRA.
Option 2: Transfer the assets to an Inherited IRA
If you choose to transfer the assets to an Inherited IRA, the amount of your RMDs will be based on your age and be recalculated each year based on the factors in the IRS Single Life Expectancy Table. A benefit of this option is that distributions from an Inherited IRA, no matter what your age, are not subject to the 10% early withdrawal penalty.
The timing of the initial distribution may be based on your spouse's age at the time of his/her death. If your spouse was:
- Older than age 70½, you must begin taking RMDs by December 31 of the year following your spouse's death.
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- Younger than 70½, you may be able to delay RMDs until your spouse would have turned 70½.
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Transferring your assets to an Inherited IRA may be advantageous if you are:
- Older than your spouse and your spouse died before age 70½, since this option would allow you to delay taking the RMDs until the year your spouse would have turned age 70½.
- Younger than age 59½ and you need access to these assets immediately, since you would not be subject to a 10% early withdrawal penalty.
If you'd like to convert to Roth IRA
Whether you move the inherited assets to your existing IRA or open a new IRA, you have the option of converting to a Roth IRA. Be aware, however, that when converting to Roth, you will have to pay any taxes due at the time you convert.
Consult an inheritor services specialist at 800-544-0003 for more information if you are interested in converting an Inherited IRA to a Roth IRA.
If you wish to make immediate withdrawals
When you move the inherited assets to your own account may make a difference if you need immediate cash.
If you need some of the assets right away and you are under age 59½, you may want to put some or all of the assets into an Inherited IRA immediately. Since distributions from that account will not have a 10% early withdrawal penalty that would apply to your own IRA, this option may be a good one if you need that immediate access to cash.
However, if you do not need those assets immediately or you are over age 59½, putting those assets into your own IRA might make the most sense. Since you are over age 59½, there will not be early withdrawal penalties.