The Financial Considerations & Investment Options of a Spousal IRA Beneficiary
Under a general tax rule, within nine months from the date of the IRA owner’s death, a spousal IRA beneficiary should make a decision on how he or she wants the IRA inheritance to be treated. In which case, the surviving spouse will choose from any of the following options:
1. Move into the Inheritance as a Beneficiary-
A spouse may opt to assume the role of the beneficiary to an IRA inheritance simply because she needs money to meet the family’s present needs. As such, she can withdraw or take minimum distributions from the account sans the 10% withholding tax and should do so within a year from the date of inheritance. The entire balance of the IRA asset should be taken out of the account within five years. All withdrawals during the said time limit will still be free of the 10% withholding tax.
One of the important facts that a surviving spouse should know is that the tax free connotation of the distribution received as inheritance is the 10% withholding tax for early deductions. Federal tax rules provide that they should still be reported as part of the inheritor-taxpayer’s gross income.
Nonetheless, the advantage of being a spousal IRA beneficiary is having the privilege to rollover part of the inheritance into becoming one’s own IRA investment account. That way, part of the distribution can be retained as an income earning investment under the rules and provisions of the IRA plan. A provision to take note of is the condition that the new IRA should be of the same type as that of the inheritance, e.g. traditional to traditional.