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Spousal & Non-Spousal IRA Rules

Spousal IRA Rules

When a spouse inherits an IRA, he or she has all of the same options as a non-spouse beneficiary, along with some other choices.

For example, if a wife is the sole beneficiary, she also has the option to “treat it as her own.” The surviving spouse will need to either transfer assets to her own existing IRA or open a new one in her name. After rolling or transforming the inherited funds into her own IRA, she may take withdrawals at any time but will be subject to the 10 percent penalty for withdrawals made before she turns age 59½. She also is responsible for any taxes owed on withdrawals.

Non-Spouse IRA Beneficiary Rules

The tax implications regarding what a child or other non-spouse beneficiary does with an inherited IRA can be complicated. Here is a brief look at just a few of the tax implications when a non-spouse inherits an IRA.

  • You must take required minimum distributions (RMDs) on the IRA; if you don’t, you can face a 50 percent penalty from the IRS.
  • You can withdraw money from the account at any age without an early distribution penalty, even before age 59 ½. If it is a traditional IRA, you will usually have to pay income tax on the entire amount withdrawn.
  • Because a Roth IRA is funded with nondeductible contributions, no taxes are owed on either original contributions or gains if the owner held it for at least five years.
  • If the deceased owner passed away before starting RMDs, you can wait to take distributions, but you must withdraw all the funds by Dec. 31 of the fifth year of the owner’s death.
  • No matter when the original owner died, you can take the RMDs over your life expectancy beginning with the year following the account owner’s death.

The content provided here is designed to provide general information on the subjects covered. It is not, however, intended to provide specific legal or tax advice.  Contact us at info@securedretirements.com or call us at (952) 460­-3260 to schedule a time to discuss your financial situation and the potential role of investments in your financial strategy.

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