The owner of an individual retirement account (IRA) turns age 70½—which is the Internal Revenue Service's required beginning date (RBD)—and he starts taking the required minimum distribution (RMD) from his IRA. Later, this retiree dies. His wife survives him and inherits her husband's IRA, but she is not yet 70½ years old.

Question: Can the wife roll over her husband's IRA funds into her own IRA, deferring the RMDs until she herself becomes 70½?

The short answer is "yes, she can." It is not so much a matter of "can she," because legally she is allowed to; it's more a question of "how" she goes about doing this, and the implications of each of the available options. And she must satisfy the RMD rules.

What Are the Rules Regarding the Above Scenario?

According to the rules for inherited IRAs, the wife-beneficiary 404 is free to take as much of the inherited account as she wants at any time, as long as she satisfies the required minimum distribution. Or she may take out all of the funds at once, as a lump sum.

An inherited IRA comes with important tax implications. Work with a knowledgeable tax advisor to make sure that you meet the RMD requirements.

Options for Effecting a Spouse-Beneficiary Rollover

However you decide to handle your inherited IRA, it's important to be aware of all of the rules surrounding RMDs; knowing them can help you to avoid making some costly mistakes.

You May Treat an Inherited IRA as Your Own

In this case, the wife does want to treat the IRA as her own; she is not yet 70½ so she doesn't want to take RMDs. She can accomplish this by either naming herself as the owner of her husband's account, or she may combine the husband's funds into her own IRA by rolling them into her account.

The Rollover

A rollover would enable you to do the following:

  1. Make contributions to the account if you are eligible—that is, if you have earned income and are less than age 70½, in the case of a traditional IRA
  2. Name your own beneficiaries
  3. Postpone RMDs until you reach age 70½, again in the case of a traditional IRA

The rollover is a good choice for the wife in question. Because her husband was older than her, she's able to delay taking the RMDs, as she wished.

Rolling over an IRA is not an all-or-nothing decision. You can parse the account and roll over some of it to your own IRA, leaving the balance in the account you inherited. However, there’s no changing your mind. If you make a rollover and take funds from it before you reach age 59½, you’ll be subject to a 10% penalty (unless some penalty exception other than death applies).

The Five-Year Rule

Another option if you inherit an IRA is that you may postpone any distributions as long as you empty the account by the end of the fifth year of death. This is called the five-year rule. In our example, let's say that the husband died in April 2020. If his wife-beneficiary uses the five-year rule method, then she must withdraw all of the funds by Dec. 31, 2025.

The Life Expectancy Method

You may take RMDs using the life expectancy method. This approach might work for you, but it would not be applicable in our example because the husband was already taking RMDs. You should use your own life expectancy if the original IRA owner was not at least 70½ and taking RMDs. To use this option, you would apply the life expectancy for your age found in the IRS Single Life Expectancy Table.

Key Takeaways

  • If a wife inherits her husband's IRA, she has options for what to do with it.
  • If you are in this position, it's important to understand the required minimum distribution (RMD) rules; they can affect how you choose to manage the inherited IRA.
  • A rollover is a popular option that you might want to consider.

Other Considerations About Inherited IRAs

The spouse beneficiary options apply only if the spouse is the sole primary beneficiary of the IRA. If the spouse is one of several primary beneficiaries, then the spouse may be subject to the non-spouse beneficiary options should they choose to keep the assets in an inherited IRA. However, the spouse may distribute and their portion of the assets to their own IRA and need not begin distributions until their RBD.