A spouse is the only IRA beneficiary who can assume or roll funds from the decedent IRA to an existing IRA. However, you cannot roll a traditional IRA into a Roth, or vice-versa. The assets from a decedent IRA must go into a like account, according to Internal Revenue Service rules.
The spouse beneficiary of an IRA can elect to assume the account by retitling it as his own. Contact the IRA trustee and let it know you want to retitle the account in your own name. If you are not yet 59-1/2 and want to take withdrawals from the account without paying the 10 percent early withdrawal penalty, you should retitle the account as follows: "Sally Smith IRA (deceased Nov. 1, 2012) for the benefit of Jerry Smith, beneficiary." When you reach 59-1/2, retitle the account once more to include your name alone.
When a spouse inherits an IRA and rolls it into her own IRA, she treats the inherited assets as her own. The usual IRS contribution and withdrawal rules apply, whether the account is a traditional or Roth IRA.
Required Minimum Distributions
When the spouse who inherits a traditional IRA turns 70-1/2 and begins taking required minimum distributions, she calculates her distributions using age-related figures from the Uniform Lifetime Table. Non-spouse beneficiaries use the Single Life Expectancy Table.
Roth IRA Rules
A spouse who inherits and assumes or rolls over Roth assets can do a great favor for her own beneficiaries. Since Roth owners never have to take any distributions, she can continue to contribute to the account with her own earnings and let the assets grow until the time of her death. The Roth will pass to her beneficiaries tax-free. If those beneficiaries choose to take distributions according to their own life expectancy, they will maximize time for asset growth even as they gradually draw down the account.
Strategy and Planning
Both the traditional and Roth IRA offer tax advantages. If, for example, you want your spouse and her heirs to have access to Roth, as opposed to traditional IRA, benefits, you can convert the traditional IRA to a Roth while you live. Retirement, estate and tax planning go hand in hand. Consulting experts in all three is advisable to get a clear perspective on IRA -- and other retirement plan -- inheritance issues.
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