How surviving spouses inherit retirement accounts

Electing ownership of an inherited IRA

A trust named as the IRA beneficiary prevents the spouse from making the ownership election, even when the spouse is the trust's sole beneficiary.

An eligible spouse makes the election by redesignating the account in the spouse's name as IRA owner rather than beneficiary. A later election may also require the distributions described below.

An eligible spouse is deemed to elect ownership by failing to take a timely required beneficiary distribution for a calendar year after the owner's death year. Making a contribution also triggers a deemed election, except for a rollover contribution from the decedent's eligible retirement plan.

After the election, the spouse is the IRA owner for all Internal Revenue Code purposes, including the early distribution tax. Owner RMD rules apply beginning in the election year.

An election during the original owner's death year creates no spouse owner RMD for that year. If the original owner died on or after the required beginning date, any unpaid lifetime RMD must still reach the beneficiaries that year.

Rolling an eligible distribution into your own IRA

A spouse receiving a deceased spouse's IRA distribution may roll an eligible amount into their own IRA even without being the sole beneficiary. The distribution must not be a required distribution and ordinarily must be rolled over within 60 days.

A properly completed rollover of an inherited traditional IRA distribution into another traditional IRA is not currently taxed. That statement does not cover a Roth conversion.

For employer plan distributions paid to a spouse after the employee's death, the federal rollover provisions apply to the spouse as though the spouse were the employee.

Withdrawals before age 59½

Distributions to a beneficiary after the employee's death qualify for the death exception to the 10% additional tax. That exception removes the additional tax, not any ordinary income inclusion required by the IRA rules.

After spouse ownership treatment, the taxable portion of withdrawals before age 59½ generally faces the 10% additional tax unless another exception applies.

Keeping beneficiary treatment and comparing payment timing

When the owner dies before the required beginning date and life expectancy payments apply, a sole spouse beneficiary may delay commencement until the end of the calendar year when the deceased owner would have reached the applicable RMD age.

That delay does not generally apply after death on or after the required beginning date, when annual distributions continue until the account is fully distributed.

Roth IRA owners have no lifetime RMDs. After death, Roth IRA RMD rules apply as though the owner died before the required beginning date, with the spouse delay available only to a sole spouse beneficiary.

Under ordinary beneficiary life expectancy rules, a sole spouse's remaining life expectancy is redetermined annually using the Single Life Table and the spouse's age on that year's birthday.

After death on or after the required beginning date, the denominator is the greater of the designated beneficiary's and the employee's remaining life expectancies.

A defined contribution plan may separately allow a sole spouse beneficiary to elect employee treatment solely for determining beneficiary RMDs. That election requires Treasury's prescribed timing and manner, including timely notice to the administrator, and revocation requires Treasury consent.

This beneficiary RMD election does not itself make an inherited IRA the spouse's own IRA.

Amounts that must come out before a rollover

Distributions first satisfy the year's outstanding beneficiary RMD, and that portion cannot be rolled over.

If the 10 year method applies after death before the required beginning date, the entire remaining entitlement in the final year is an RMD and cannot be rolled over.

A special catch up exclusion can also apply before that final year when the spouse uses the 10 year method.

It applies to a distribution in or after the year the spouse reaches the applicable RMD age, when a portion is rolled into an eligible retirement plan where the spouse is treated as owner rather than the decedent's beneficiary.

The catch up period begins in the later of the year the spouse reaches that age or the year the deceased owner would have reached it. It ends in the distribution year.

A late IRA ownership election requires distributing those excluded amounts first.

Two terms behind these choices

Eligible designated beneficiary. This is a beneficiary qualifying for a statutory exception to the usual 10 year payout rule. A surviving spouse qualifies, with status determined at the account owner's death.

Required beginning date. This is the deadline for beginning an owner's lifetime required minimum distributions. Whether death occurs before or on or after that point affects beneficiary distribution rules.

Common questions