My Spouse Left Me An IRA, What Are My Options? By Russell L Ellis

 There are many considerations taken into account in determining what a surviving spouse can and should do with an IRA received from a deceased spouse. Breaking down each consideration will simplify the decision-making process and help determine how to handle this important asset. Below is a breakdown of the options and considerations for a surviving spouse who has received a traditional IRA as a designated beneficiary.

First, a person receiving an IRA from a deceased IRA owner generally must begin taking minimum distributions following the death of the account holder. However, in the case of a surviving spouse beneficiary the distributions would be based on the surviving spouse's life expectancy if the predeceased spouse has not yet reached the age where they were required to begin taking distributions (i.e. 70 1/2 years old). If, on the other hand, the predeceased spouse has begun taking his or her required distributions, then the surviving spouse may take distributions over the spouse's life expectancy (recalculated annually). But you, as the surviving spouse, can elect to take over a period of time shorter than any of the above situations should you so choose. The other option a surviving spouse has is to wait until the predeceased spouse would have reached the age of 70 1/2 years old to begin taking distributions, if the spouse has not yet begun to take required distributions.

Second, after deciding the timing of distributions, a decision needs to be made as to how to hold the funds. In addition to deciding whether you want to begin taking distributions now or later, you have the ability to take distributions from the account as it stands, change the name on the account to your own name or roll the assets of the account into your own IRA. The latter option is available only where the spouse is the sole beneficiary and has an unlimited right to withdraw amounts from the IRA, but this can frequently be accomplished by segregating the funds into a separate account.

The decision on how to hold the funds will again depend on the surviving spouse's financial goals. Typically, the goal is to defer taking payments as long as possible so that the surviving spouse is retired and taxed on the income while the surviving spouse is in a lower tax bracket. Therefore, if the surviving spouse is younger than the predeceased spouse it may be more advantageous to roll over the IRA into the surviving spouse's name. If this occurs, the surviving spouse is treated as the owner of the account for all purposes and is required only once the surviving spouse reaches the required age for distributions (currently 70 1/2 years old). If, instead, the surviving spouse is older than the predeceased spouse it may be more advantageous to leave the assets in the predeceased spouse's IRA and begin drawing at the later of either: (1) December 31 of the calendar year after the predeceased spouse died; or (2) December 31 of the calendar year in which the IRA owner would have attained age 70 1/2. If the surviving spouse chooses to leave the IRA in the predeceased spouses name the surviving spouse must take distributions over the surviving spouse's life expectancy or a shorter period.