Personal Finance

Money Matters: Reasons to roll a deceased spouse’s IRA to your own

Q. My mother passed away very recently (age 84). I’ve read as much as I can on this subject but am still unsure if I’m understanding how to handle my deceased mother’s IRA correctly.

The IRA was my father’s. He passed away 12 years ago at age 74 (my mother was 72), so he was already taking required minimum distributions (RMD) at the time. My mother apparently did not invoke the spousal rollover option to take the IRA into her own name, but rather was taking distributions as a beneficiary with my father as owner. My brother and I were listed as contingent beneficiaries on my father’s IRA. Mother used the appropriate recalculating lifetime table for a spouse.

If I understand what I’ve read correctly, my brother and I are each a beneficiary of the beneficiary, or “Son Beneficiary of Mom (deceased) Beneficiary of Dad’s IRA (deceased)” and as such cannot stretch the IRAs with our own lifetime expectancies, but rather have to continue taking RMDs according to the schedule my mother was following at the time of her death. In other words, the only way my brother and I could have stretched with our own lifetime tables is if our mother had actually taken our dad’s IRA into her own name as a spousal rollover.

Is my understanding of this situation correct?

A. Yes, your understanding is correct. It’s a good thing your father named contingent beneficiaries! Your situation points out one of the reasons a spouse should consider rolling his or her deceased spouse’s IRA to their own. One situation a spouse may not want to roll a deceased spouse’s IRA to their own is if the surviving spouse is younger than age 59-1/2. If the rollover election is not made, withdrawals from the decedent’s IRA will not be subject to a 10 percent early withdrawal penalty even if made before age 59-1/2. Once the surviving spouse attains age 59-1/2, they can then roll the IRA into an IRA in their own name. The option to roll an inherited IRA to a person’s own name is only available to a surviving spouse who is the sole designated beneficiary of the deceased spouse’s IRA.

The main reasons a surviving spouse should roll the deceased spouse’s IRA to their own name follow:

▪ The surviving spouse can now designate their own IRA beneficiaries. Upon the death of the surviving spouse, if a younger family member or friend is the beneficiary, the RMDs can be based on that beneficiary’s life expectancy allowing for a longer life span of the IRA or as it is often called a “stretch IRA.”

▪ The required beginning date (RBD) of the RMD may be deferred. With the rollover election, the surviving spouse can postpone RMDs until April 1 of the year following the year in which they attain age 70-1/2. If RMDs have not begun and the IRA remains in the deceased spouse’s name, RMDs must begin by the later of Dec. 31 of the year following decedent’s death or Dec. 31 of the year in which the decedent would have attained age 70-1/2. If RMDs have begun when the IRA owner dies and the rollover election is not made, payouts to the surviving spouse must begin in the year following the IRA owner’s death.

▪ The use of the uniform life expectancy table is allowed if the rollover election is made since the IRA is now treated as if the surviving spouse had funded the IRA. This table results in a smaller annual RMDs. If the IRA remains in the decedent’s name, the single life expectancy table must be used to compute the RMDs paid to the surviving spouse. This will result in larger RMDs and a shorter life span for the IRA.

Note that different tables apply if the surviving spouse is more than 10 years younger than the deceased IRA owner.