Individuals who inherit retirement accounts usually have limited options for distribution of assets. But a spouse beneficiary has more flexibility and can design and implement better tax planning strategies. (1) These rules are complex and before you make any decisions, you should speak with a trusted tax advisor about the best option for you and your individual needs.
Beginning January 1, 2020, under the Secure Act, a spouse beneficiary has three choices:
- Roll the IRA into their own name and treat it as their own. Required minimum distributions (RMDs) will not be required for the owner until they reach the age of 72 years old. This may make sense for a younger beneficiary as it enables them to maximize tax free growth. By rolling money into an account in their name, they also get the advantage of a universal life table. Non-spouse beneficiaries use a single life table, which requires higher RMDs.
- Leave the account as a beneficiary account which may have benefits if they are under age 59.5 as the 10% additional tax on distributions does not apply to beneficiary accounts.
- Additionally, the spouse has an option to roll the account into their existing employee benefit plan, such as a 401(k), 403(b) or 457(b), however, the funds will be subject to the rules of the new plan document and may limit their options going forward.
See this article to learn more about inheriting a non-spouse traditional IRA beneficiary.
(1) This information is for general education purposes only and not intended to be tax advice. We encourage you to consult a qualified tax professional before requesting a distribution.