This is the third part of our series on what happens when someone inherits an IRA after the SECURE Act changed the rules in 2020.
In the last two articles, we talked about how the rules work for people who aren’t the spouse of the person who died.
This article is all about spouses—because if your husband or wife had an IRA and passed away, you have more choices than anyone else.
1. What Are Your Options?
If your spouse dies and leaves you their IRA, you can:
- Make it your own IRA (by moving the money into your own account)
- Keep it as an inherited IRA (and take money from it as the “beneficiary”)
- Cash it out all at once (this is allowed, but you'll owe taxes, so it’s usually not a good idea)
2. Why Age Matters
If You’re Under Age 59½:
- Normally, if you take money from your own IRA before you're 59½, the IRS charges a 10% penalty.
- But if you keep the IRA as an Inherited IRA, you can take money out without a penalty, even if you're younger.
A good strategy is to keep it as an inherited IRA until you turn 59½. Then move it to your own IRA if you want. That way you can access the money should you need it before 59½.
If Your Spouse Was 73 or Older:
- Once someone turns 73, they must take money out of their IRA every year (called an RMD—Required Minimum Distribution).
- If your spouse already started doing this, you’ll have to continue taking RMDs if you treat it as an inherited IRA,
- If you make the IRA your own, you don’t have to take RMDs until you turn 73.
3. Can You Delay Taking Money Out?
Yes! If your spouse was older than you and hadn’t started RMDs yet, you can:
- Keep the IRA as inherited
- Wait to take money out until the year they would’ve turned 73
This can help you pay less in taxes by delaying withdrawals.
5. What If You Inherit a Roth IRA?
Roth IRAs are special because the money grows tax-free, and you usually don’t have to take money out during your life.
If you inherit a Roth IRA from your spouse:
- You can make it your own and never take RMDs.
- Or, you can keep it as inherited, but then you’ll have to start taking money out—unless you were the only person named on the account, in which case you can delay.
6. Other Things to Think About
- If your spouse left the IRA to a trust, it might limit what you can do. Talk to a professional.
- If you inherit and IRA and don’t want the proceeds, you can choose to pass the IRA to someone else, it’s called “disclaiming.” It would then go to the contingent beneficiary if named, otherwise according to the default rules.
- Important! After you inherit the account, don’t forget to name your own beneficiaries for the future.
7. Taxes and Planning Tips
- If you're now filing taxes as single, withdrawals might put you in a higher tax bracket.
- After age 70½, you can make charity donations directly from an IRA, which can lower your taxes.
- Be careful about timing withdrawals if you’re also taking Social Security or on Medicare—it can affect what you pay.
Final Thought
If your spouse passes away and leaves you their IRA, you’ve got choices. The best option depends on your age, your needs, and your goals. Talking with a financial advisor can help you make the smartest decision for your future. If you would like a brief phone or zoom meeting, use this calendar link to pick a time that works for you: https://calendly.com/tarlovfinancial/expedited-meeting-time
Cetera Advisor Networks LLC exclusively provides investment products and services through its representatives. Although Cetera does not provide tax or legal advice, or supervise tax, accounting or legal services, Cetera representatives may offer these services through their independent outside business. This information is not intended as tax or legal advice.
A Roth IRA offers tax free withdrawals on taxable contributions.
To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.