Can a Spouse Not Named as a Beneficiary Receive Assets from an IRA?

Generally, no. But exceptions exist

An individual retirement account (IRA) is a retirement savings account. Individuals who have earned income can deposit money up to a certain limit into their IRA each year. The annual contribution cannot exceed $6,000 in most cases for the 2022 tax year. If you are 50 or older, you can contribute an additional $1,000 as a catch-up contribution, raising that limit to $7,000.

While this may be basic knowledge for most savers, there are some points about your IRA you may not know. In most cases, your spouse inherits your estate upon your death. But that may not be the case with your IRA. Typically, a spouse who isn't a beneficiary of an IRA is not entitled to receive, or inherit, the assets when the account owner dies. However, some exceptions exist.

Key Takeaways

  • A spouse generally isn't entitled to an IRA if they aren't named as the beneficiary.
  • Make sure you change your beneficiary after a divorce to ensure your ex doesn't inherit your IRA.
  • The owner of an IRA must get their spouse's approval to name another beneficiary in community property states.
  • Approval to name another beneficiary grants the surviving spouse half of the IRA balance while non-approval grants them the entire balance.
  • An IRA may be passed on to the surviving spouse if the IRA owner dies without a will and doesn't name a beneficiary, according to intestate succession.

A Beneficiary Designation Trumps a Will

Unlike other financial accounts and assets, an IRA is not considered part of your estate. As such, it is not governed by the provisions of a last will and testament. Generally speaking, the person you designate as the IRA's beneficiary (which you usually do on a form when establishing the account) dictates who inherits the IRA—not your will. Even if you name someone in a will, the IRA designated beneficiary would supersede it.

This includes an ex. If you named your ex as the beneficiary of your IRA but you divorce, they may still inherit the account after you die in most states. Since your divorce doesn't necessarily disqualify them from assuming your account, it's important to change your beneficiary after you legally separate.

Your IRA becomes part of your estate only if you fail to designate a beneficiary at all or the beneficiary has predeceased you. That's when your account becomes subject to the provisions of your will. As such, no one else is entitled to receive any share of the IRA unless the named beneficiaries choose to disclaim their portions.

One of the benefits of an IRA is that assets can be transferred directly to beneficiaries without having to go through probate.

IRA Beneficiaries in Community Property States

In most states (those deemed non-community property states), you are given priority when your spouses die. You can also contest inheritance by going to court if you feel as though your rights as a spouse aren't being met. This includes any funds in your deceased spouse's IRA account.

In community property states, half of the money one spouse earns while married is community property, which means it belongs to the other spouse. You may be able to inherit your deceased spouse's IRA in community property states. In these states, you must be the IRA's primary beneficiary, unless you authorize your spouse to name someone else. This means you must give your approval for your spouse to name another beneficiary.

If your spouse names someone else without your approval, you may be entitled to a portion of the IRA when your spouse dies. Half of the account's value is yours while the other individual is entitles to the other half. The designated beneficiary(s) can take possession of your share of the IRA, though, if your spouse received your approval when they were named. Be sure to check with the account custodian to determine whether the proper approval was obtained.

Take note, though, that even if the contributor resides in a community property state, the IRA (or a portion of it) may still not be subject to the community property laws if the balance was accrued before they were married. The same is true if you inherited any funds (from an IRA) before you were married. To be sure, check with a local attorney who specializes in estate planning or inheritance laws, as state statutes vary.

9

The number of community property states. These states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Alaska is an opt-in because it gives both spouses the option to designate their property as community property.

Exceptional Circumstances for Inheriting IRAs

What about the scenario we described earlier where no beneficiary is designated? If the IRA owner failed to name one and resided in a community property state, then the spouse would be entitled to the account, as it would become part of the deceased's regular estate.

Here is another scenario. If the account owner doesn't name any beneficiaries and dies without a will, the IRA is subject to state laws of intestate succession. While these vary surviving spouses and children usually top the list to inherit assets, which would include the IRA funds.

When Does a Beneficiary of an IRA from a Spouse Have to Pay Taxes?

An individual who inherits their spouse's IRA must pay taxes on funds withdrawn from a traditional IRA in the year the distributions are made. The amounts are subject to ordinary income. Individuals who inherit Roth IRAs, on the other hand, don't have to pay taxes.

When Do RMDs for an Inherited IRA Begin?

If you are a named beneficiary and inherit an IRA after Jan. 1, 2020, you must withdraw the entire account within 10 years of the original account holder's death. You are liable for taxation on the amount withdrawn.

This rule doesn't apply to surviving spouses, disabled or chronically ill individuals, minor children, and individuals who aren't more than 10 years younger than the IRA account owner. They aren't expected to take RMDs if they can't treat the account as their own. In this case, the distribution can be calculated based on their own life expectancy.

Is Your Spouse Automatically the Beneficiary of an IRA?

Unlike other financial accounts and assets, an individual doesn't automatically become the beneficiary of their spouse's IRA. In most cases, the account holder can name a beneficiary, whether that's a child, another relative, or someone else other than their spouse. In community property states, though, a spouse can inherit an IRA or must approve of the account holder's designated beneficiary in writing.

The Bottom Line

Naming a beneficiary for your IRA may seem simple enough. But things can get a little complicated for your spouse after your die depending on where they live. While most states allow you to name anyone as your IRA beneficiary, that isn't the case in community property states. Your spouse must give you permission to name someone else. If you don't, your spouse may be entitled to the entire account balance. As with any other financial account, be sure to consult a professional to know your rights and responsibilities.

Article Sources
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  1. Internal Revenue Service. "Retirement Topics - IRA Contribution Limits."

  2. The American College of Trust and Estate Council. "IRAs and IRA Beneficiaries."

  3. Internal Revenue Service. "Internal Revenue Manuals 25.18.1 Basic Principles of Community Property Law."

  4. Internal Revenue Service. "Internal Revenue Manuals 25.18.1. Basic Principles of Community Property Law 3.13 (02-15-2005) When the Character of Property Is Determined."

  5. Internal Revenue Service. "Internal Revenue Manuals 25.18.1 Basic Principles of Community Property Law 2.2 (03-04-2011) Community Property Law."

  6. Uniform Law Commission. "Uniform Probate Code 2019," Pages 29-32.

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