Surviving Spouses Inheriting IRAs Have Options

Hook Law Center (formerly Oast & Hook)

Virginia Beach, VA (Law Firm Newswire) November 6, 2014 – Surviving spouses named as a beneficiary of their deceased spouse’s IRA should carefully consider their options for handling the account. The primary options are to assume the IRA, inherit the IRA, take a lump-sum distribution or disclaim the account.

“How an IRA is handled after a spouse’s death can have major tax and financial consequences for the spouse beneficiary,” said Andrew Hook, a Virginia estate planning attorney with Hook Law Center.

Assuming an IRA means transferring the assets into an IRA in one’s own name. For tax purposes, the IRA is treated as if it had always been owned by the new owner. This can simplify account management and allow the individual to avoid taking distributions until age 70 1/2 years old. Spouses can take this option at any time, with no deadline.

Inheriting an IRA means taking the account as a beneficiary. With this method, the spouse withdraws from the account for a period of time. The withdrawals have no tax penalty, even if the individual is under the age of 59 1/2. The individual can also delay withdrawals until the year in which the spouse would have turned 70 1/2.

Another option is to take a lump-sum distribution after transferring the assets to the beneficiary’s name. The funds may then be deposited into a non-IRA account. A lump-sum distribution is subject to taxes and must be reported as income, which can have negative tax consequences. In some cases, the spousal beneficiary may choose to disclaim the IRA, which will then pass to remaining beneficiaries or secondary beneficiaries.