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How a Spouse Can Stretch an Inherited IRA

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If you or someone you know has inherited an IRA from a spouse, you have several options available to you.  You can leave the IRA where it is and treat the IRA as if the original owner is still alive; you could transfer the IRA to an inherited IRA, properly titled, and begin taking RMDs based upon your own age; or you can transfer the IRA to an IRA titled in your own name and treat the IRA as your own.  Each option has merit, you just need to determine which is best for you.

Leave it where it is

If you do nothing and leave the IRA in your late spouse’s name, you can delay having to take Required Minimum Distributions (RMDs) until your late spouse would have been 70½ years of age.  If you’re older than your late spouse, this could result in a delayed start of RMDs.  If you’re younger, and you wish to delay receiving benefits, you might want to look at one of the other options.

Take the IRA as an inherited IRA

If you transfer the IRA to an inherited IRA, you can immediately begin taking RMDs based upon your own age, using IRS Table I.  This will allow you to stretch out the payments you would receive from the IRA over your lifetime, without penalty.  If you have need for some of the funds now but wish to defer withdrawal over a longer period of time.

Take the IRA as your own

If you decide to make the IRA your own, you can treat the IRA exactly as if it were your own:  you can make contributions to it, rollover other eligible funds into it, or convert it to a Roth IRA.  In this case, you can delay the time to start taking RMDs until you reach age 70½ – so if you are younger than your late spouse was, this method allows you to delay RMDs the longest.

In this method, any withdrawals that you take before age 59½ could be subject to the 10% early withdrawal penalty, unless you meet one of the exceptions.  On the other hand, this method is one that has no time limit.  You can transfer the IRA to an account in your own name at any time, even if you’ve taken some distributions from the originally-titled account.

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