Inherited IRA: Learn about your choices

When you inherit your spouse's IRA or workplace savings account directly, you have one option available that no other IRA inheritor has: As a surviving spouse, you can transfer your inherited proceeds into your own IRA and treat these assets as if they were your own. For IRAs, the registration type of both IRAs must be the same (Traditional to Traditional or Roth to Roth).

The benefit of this option is that both the amount and the timing of required minimum distributions (RMDs) are based on your own age.

Another benefit is that if you roll over these assets into your own IRA, your RMD will generally be based on the Uniform Lifetime Table (PDF), which assumes that distributions would extend over 2 lives, yours and a beneficiary 10 years younger than you.

Rolling over your assets to your own IRA may be advantageous if you are:

• Younger than your spouse since this option would allow you to delay taking the RMDs until the year you turn 72.
• Older than age 59½ or you do not need access to these assets until you reach age 59½, since you would not be subject to a 10% early withdrawal penalty.

Required forms and paperwork

To roll over inherited IRA assets into your existing IRA, you will need:

• Spousal Claim Form for IRAs (PDF).
• Fidelity IRA beneficiary designation: Update your beneficiaries online or complete and mail the Fidelity IRA Beneficiary Designation Form (PDF).
• Copy of the decedent's death certificate.

Note: There are some who believe that keeping your spouse's IRA assets separate from your IRA assets is advisable, particularly if creditor protection is a concern.

To roll over inherited IRA assets into a new IRA, you will need:

• A Fidelity IRA application: Open online or agree to the terms, then complete and mail the PDF application.
• Copy of the decedent's death certificate.

Note: Be sure to consult with your tax advisor to verify if an Inheritance Tax Waiver is required by the decedent's state of residence.

You have the option of transferring the IRA or 401(k) assets you inherit from your spouse to an Inherited IRA. With an Inherited IRA, the amount of your required  minimum distributions (RMDs) will be based on your age and will be recalculated each year based on the factors in the IRS Single Life Expectancy Table.

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 72, you must begin taking RMDs by December 31 of the year following your spouse's death.
• Younger than 72, you may be able to delay RMDs until your spouse would have turned 72.

Transferring your assets to an Inherited IRA may be advantageous if you are not concerned about creditor protection issues and are:

• Older than your spouse and your spouse died before age 72, since this option would allow you to delay taking the RMDs until the year your spouse would have turned age 72.
• Younger than age 59½ and you need access to these assets immediately, since you would not be subject to a 10% early withdrawal penalty.

Required forms and paperwork

To transfer your inherited IRA assets into an Inherited IRA, you will need:

• Fidelity Inherited IRA application: Open online or agree to the terms, then complete and mail the PDF application.
• Copy of the decedent's death certificate

Note: Be sure to consult with your tax advisor to verify if an Inheritance Tax Waiver is required by the decedent's state of residence.

When you inherit your spouse's IRA or 401(k) directly, you have the option of converting it into a Roth IRA in your name. Roth IRAs have many benefits, including the potential for tax-free growth of assets and no RMDs during the lifetime of the original owner. However, you will need to pay taxes on the amount converted from the non-Roth IRA into the Roth IRA.

Converting your inherited assets to a Roth IRA is more likely to be advantageous if you expect higher taxes in retirement and you can afford to pay the taxes with funds from other sources.

Required forms and paperwork

To roll over and convert inherited IRA assets into your existing Roth IRA, you will need:

• Spousal Claim Form for IRAs (PDF).
• Fidelity IRA beneficiary designation: Update your beneficiaries online or complete and mail the Beneficiary Designation Form (PDF).
• Copy of the decedent's death certificate

To roll over and convert inherited assets into a new Roth IRA, you will need:

• Inherited IRA application: Open online or agree to the terms, then complete and mail the PDF application.
• Fidelity Roth IRA conversion form: Complete onlineLog In Required or complete and mail the Fidelity Roth IRA Conversion Form (PDF).
• Copy of the decedent's death certificate

Note: Be sure to consult with your tax advisor to verify if an Inheritance Tax Waiver is required by the decedent's state of residence.

If, after consulting with your attorney and tax advisor, you find that you will not need or want all or some of your inherited IRA assets during your lifetime, you may want to disclaim—or refuse to inherit all or part—of these assets. Call a Fidelity Transition Services specialist at 800-544-0003 if this is the case.

Your disclaimed inheritance would then be passed on directly to the next eligible beneficiaries. It is important to note that the beneficiaries must be named on the IRA, otherwise assets will pass according to the rules of succession as outlined in the applicable Fidelity IRA Custodial Agreement and Disclosure Statement (PDF). Any required minimum distributions would be based on the other beneficiaries' ages, rather than your own.

If the other beneficiaries are younger than you, you would, in effect, be stretching out the potential for tax-deferred growth on this IRA legacy. For example, if your spouse named you as the primary beneficiary of his IRA, and your son as the contingent beneficiary, if you disclaim your IRA inheritance (meeting all the necessary requirements), your son would inherit all of the IRA assets. Since the required minimum distributions would now be based on his life expectancy, the RMD amount would be lower, leaving more assets in the account to potentially compound tax-deferred.

Disclaiming all or part of your IRA inheritance may be advantageous in the following situations:

• You don't need all or some of these assets and you'd like a younger beneficiary to be able to maximize the potential for tax-deferred growth by stretching distributions out over his/her lifetime.
• The decedent's estate was not structured ideally for estate tax purposes. A disclaimer may be used to allow assets that would otherwise be passed to the surviving spouse to go to other beneficiaries. While assets left to a spouse are generally not subject to estate taxes, they will be part of your estate upon your passing. If you can afford it and it aligns with your goals, you may want to consider disclaiming an amount up to the estate tax exemption limit in order to take advantage of your estate tax exemption.

Note: If you want to take advantage of this option, you must disclaim assets within nine months of the IRA owner's death—before you've actually taken possession of those assets. A disclaimer is an irrevocable decision to give up your right to inherit the IRA assets. Be sure to consult with a tax or legal advisor about this option and to verify if an Inheritance Tax Waiver is required by the decedent's state of residence.

If you inherited a workplace savings account, the plan from which you are inheriting assets may allow you to leave those assets in the plan. Details vary by plan, so discuss that option with the plan administrator for that plan.

If you choose to transfer Fidelity Retirement Plan assets to an Inherited Retirement Plan Account and leave the assets in the plan, you generally must take RMDs according to the plan's distribution options available to spouse beneficiaries. Also, the plan must continue to be administered by the sponsoring employer. If the decedent was the sponsoring employer, an Inherited Plan Account is not an ongoing option. If the deceased Retirement Plan Account owner was over age 72 and still owed any RMDs for the year he or she died, you must generally withdraw the appropriate amount by December 31 of the year the Retirement Plan Account owner died. The RMD amount distributed to you as beneficiary in the year of death must be based on the Retirement Plan Account owner's RMD schedule but is distributed under your tax ID number. RMD amounts cannot be rolled over.

When you move your inherited assets certain details are dictated by the type of retirement account you inherited, but generally if you're inheriting from an IRA (e.g., Traditional, Roth, Rollover, and SIMPLE), if you choose to directly roll over your inherited IRA into a Fidelity Inherited IRA, you'll control both how your inherited assets are invested and to whom they pass upon your death. See the rules for your required distributions.

Note: It is very important to make sure the assets are directly rolled over to an Inherited IRA and that the other firm does not issue a check in your name for those assets.

Required forms and paperwork

To transfer your inherited IRA assets into an Inherited IRA, you will need:

• Fidelity Inherited IRA application: Open online or agree to terms, then complete and mail the PDF application.
• Copy of the decedent’s death certificate
  
  Note: Be sure to consult with your tax advisor to verify if an Inheritance Tax Waiver is required by the decedent's state of residence.

If you're inheriting from a Fidelity Profit Sharing, Money Purchase Plan, or Self-Employed 401(k), you can choose to transfer your inherited Retirement Plan assets into a Fidelity Inherited Retirement Plan Account and then directly roll over those assets into a Fidelity Inherited IRA. Call a Fidelity Transition Services specialist at 800-544-0003 for help transferring these assets.

If you're inheriting from another type of workplace savings account such as a 401(k) or 403(b), you can directly roll over an inherited workplace savings account to an Inherited IRA. This option allows you to begin taking RMDs by December 31 of the year following the retirement plan owner's death. Note that all plans must allow for a non-spouse beneficiary to roll over into an Inherited IRA as a distribution option. Speak to the inherited plans provider on how to handle the transfer of these assets.

In order to do so, the assets must first be transferred to you via an Inherited IRA. Note that this will have tax consequences, as the amount will be included in your gross income.

Generally, in order to take a cash distribution, the assets must first be transferred to you via an Inherited IRA or Inherited Retirement Plan Account. There are details dictated by the type of investment account you inherited, but generally your distribution is includable in your gross income and will be subject to ordinary state and federal income taxes. Call a Fidelity Transition Services specialist at 800-544-0003 for help.

Tax laws require mandatory 20% withholding for all distributions taken from retirement plan accounts, such as a 401(k) or 403(b).

If, after consulting with your attorney and tax advisor, you find that you will not need all or most of your inherited assets during your lifetime, you may want to disclaim—or refuse to inherit all or part—of your inherited assets. If this is the case, call an Transition Services specialist at 800-544-0003.

Your disclaimed inheritance would then be passed on to the next eligible beneficiaries. Any required minimum distributions would then be based on the other beneficiary's age, rather than your own. If the other beneficiaries are younger than you, they would, in effect, be stretching out the potential for tax-deferred growth on these assets.

Tax rules require you to disclaim assets within nine months of the IRA/Retirement Plan account owner's death. Be sure to consult with a tax or legal advisor concerning this option and to verify if an Inheritance Tax Waiver is required by the decedent's state of residence. A disclaimer is an irrevocable decision to give up your right to inherit the IRA/Retirement Plan assets.

If you inherited a workplace savings account, the plan from which you are inheriting assets may allow you to leave those assets in the plan. Discuss that option with the workplace savings plan administrator for that plan, as details vary for each plan.

If you choose to transfer Fidelity Retirement Plan assets to an Inherited Retirement Plan Account and leave the assets in the plan, you generally must take RMDs according to the plan's distribution options available to non-spouse beneficiaries. Also, the plan must continue to be administered by the sponsoring employer. If the decedent was the sponsoring employer, an Inherited Retirement Plan Account is not an ongoing option.

If the deceased Retirement Plan Account owner was over age 72 and still owed any RMDs for the year he or she died, you must generally withdraw the appropriate amount by December 31 of the year the Retirement Plan Account owner died. The RMD amount distributed to you as beneficiary in the year of death must be based on the Retirement Plan Account owner's RMD schedule but is distributed under your tax ID number. The RMD cannot be rolled over. If you have questions, please call a Transition Services specialist at 800-544-0003.