When a spouse is the beneficiary of the IRA of their deceased spouse’s IRA, there are several options available. Each option has its own advantages, depending on the needs of the surviving spouse. Read below to see which option benefits you best.
Are you the sole beneficiary to your spouse’s Traditional IRA?
If you are not the sole beneficiary, your situation is a bit more complicated. Check out our “Can I Delay the RMD from the Traditional IRA I Inherited?” flowchart here . If you are the sole beneficiary, move on to the next question.
What best describes your situation:
You plan to use all the assets in five years
Consider electing the 5 year rule if you expect significant expenses over the next five years that will deplete the account. This allows you to take distributions at any time over the next five years of any amount, provided the account is depleted at the end of five years. Keep in mind you will need to pay ordinary income tax on all distributions in the year they are taken.
You want income and are younger than 59.5 years old
Consider inheriting the IRA, which will allow you to take distributions from the IRA penalty-free. You will be required to take RMDs based on the IRS Single Life Expectancy table. Of course, you can take any amount of distributions that you need as long as the distribution is greater than or equal to the RMD.
You don’t want income and/or are younger than your deceased spouse
Consider rolling over the IRA into your own IRA. This will allow you to avoid taking RMDs until the year after you turn 70.5. If needed, you can take distributions as soon as you hit 59.5.
There are a lot of factors to consider when deciding which option is best for you. Check out this flowchart to learn more.
If you would like to schedule a call to talk about the best strategy for an IRA you have inherited, give us a call at 303-440-2906 or click here to schedule a time to speak with us.
Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail email@example.com.
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