Tuesday, November 16, 2010

RMDs for Spouse Beneficiaries

When a spouse inherits an IRA, he or she has options other beneficiaries do not have. We like to refer to the spouse as the king or queen of beneficiaries. Keep in mind that the spouse must be the sole beneficiary of the account in order to qualify for these options.

Delayed Distributions
If the spouse is the sole beneficiary, and the IRA owner dies before his RBD (required beginning date), the spouse can delay required distributions until December 31st of the year the deceased IRA owner would have turned 70½ years old, regardless of the age of the spouse.

Recalculate Life Expectancy
A spouse who is a sole beneficiary can recalculate life expectancy each year. She cannot do that if separate accounts are not set up.

Treat IRA as the Spouse’s Own
A spouse who is the sole beneficiary can treat the IRA as her own. She cannot do that if separate accounts are not set up.

Spousal Rollover
Only a spouse beneficiary can roll over her share of an IRA into her own IRA. There is no deadline for rolling over the spouse’s separate share. The spousal rollover, though, is best accomplished when the spouse is the sole beneficiary of a separate IRA as opposed to being one of several beneficiaries and having to split out her share after the IRA owner’s death.

Generally it is better for the spouse to roll the account over into their own name. However, for a younger spouse (under age 59 ½) who may need retirement funds to live on, it is better to remain a beneficiary until age 59 ½ to avoid the 10% early distribution penalty. This penalty is never assessed on distributions to beneficiaries.

By IRA Technical Consultant Beverly DeVeny and Jared Trexler
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