Inheriting an IRA from a Spouse: What You Need to Know

Many people are unsure how to handle IRAs that have been inherited from a deceased spouse. You actually have several options as a spousal beneficiary of an IRA:

• Keep the IRA investment and trustees the same and update the name on the account to your own name.
• Transfer the IRA to a new trustee and create a new IRA account.
• Roll the IRA into the appropriate account you have already set up so it can be managed like your current account.
• Traditional IRAs: take a lump sum distribution and pay income taxes on the entire amount. There is no 10% IRS penalty.
• Roth IRAs: take a lump sum distribution. If the account is less than 5 years old, earnings are taxable.

Inherited IRA Withdrawal Options

It is possible to withdraw funds from an inherited IRA if you are younger than age 59½. In order to avoid a 10% penalty to the IRS, follow these rules:

• Younger than age 59½ inheriting a traditional IRA from a spouse: Create an “inherited IRA” account that lists you as the beneficiary along with your deceased spouse’s name as the original owner and the date the spouse passed away. With this in place you may make withdrawals without penalty. After you pass the age of 59½, you can put the IRA in your name for more options.
• Younger than age 59½ inheriting a Roth IRA from a spouse: It is best to wait at least 5 years before making any withdrawals to the account. Withdrawals made before that timeframe will incur a 10% penalty.

There is a lot more to know about inheriting an IRA from a deceased spouse. Let the experienced Denver estate lawyers at The Brown Law Firm LLC help you understand your options. Contact us today: call (303) 339-3750 or send us a message online.