When you inherit your spouse’s traditional IRA, you have a number of options.
Option 1: You can roll the proceeds of the inherited IRA over to your own traditional IRA. This can be a new IRA, or one you already own.
Option 2: You can treat the inherited IRA as your own by designating yourself as the owner of the IRA. If you’re the sole beneficiary, you’ll also be deemed to have elected to treat the inherited IRA as your own if you make any contributions to the IRA, or if you fail to take required minimum distributions (RMDs) as the IRA beneficiary.
With both options 1 and 2, because you own the IRA, you’ll name the beneficiary who’ll receive the funds after your death. You’ll need to start taking RMDs by April 1 of the year following the year you turn 70 1/2. Because you own the IRA, distributions prior to age 59 1/2 will be subject to income tax plus a 10% early distribution penalty, unless an exception applies.
Option 3: You can remain the beneficiary of the inherited IRA. Because you’re the beneficiary and not the IRA owner, any distributions you receive from the IRA will be subject to income tax, but will be exempt from the 10% early distribution penalty. This might be a good choice if you’ll need to access the IRA funds before you turn 59 1/2. In general, you won’t need to start taking RMDs until the end of the year your spouse would have turned 70 1/2 (or, if later, the end of the year following the year your spouse died).
Option 4: You can roll the taxable portion of the distribution over to an employer retirement plan (for example, a 401(k), 403(b), or governmental 457(b) plan) that accepts rollovers.
Option 5: You can withdraw the funds. You’ll have to include the taxable portion of the distribution in gross income (the 10% penalty won’t apply).
Read the disclosure.
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