Inheriting an IRA from a SpouseEd Slott & Company
Is it better to move it into your own name?
Posted July 30, 2009
You've inherited an IRA from your spouse. What do you do now? Should you leave it as an inherited IRA or should you move it into an IRA in your own name?
Generally it is better to move the IRA into an IRA in your own name. You will not have to take any required distributions until you are 70 ½ and those distributions will be calculated using a factor from the Uniform Lifetime Table. The beneficiaries that you name on your own IRA will be able to stretch distributions over their own life expectancies at your death. The IRA is treated as though it were always your IRA funded with your dollars.
If you leave the IRA as an inherited IRA you will have to start taking required distributions when your spouse would have been 70 ½. Those distributions will be calculated using the Single Life Table which will produce a larger annual distribution. This will deplete the account more quickly and increase the amount of income tax you must pay each year. Any beneficiaries that you name will have to continue using your life expectancy if you die after required distributions begin.
However, when you are under the age of 59 ½ when you inherit an IRA you should consider keeping it as an inherited IRA if you are going to need the funds to live on in the immediate future. Funds withdrawn from an inherited IRA are not subject to the 10% early distribution penalty but funds withdrawn from your own IRA are. Once you reach the age of 59 ½, then you can move the inherited IRA into your own IRA. There is no time limit for doing this.
Ed Slott and Company has been called "The Best" sources for IRA advice by The Wall Street Journal, and "America's IRA Experts" by Mutual Funds Magazine. Ed is a widely recognized professional speaker and author. The company’s website is IRAHelp.com.