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| Roll Over Inherited IRA Assets to Your Own IRA |
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| When you inherit your spouse’s IRA directly, you have one option available that no other IRA inheritor has: as a surviving spouse, you can roll over your inherited IRA proceeds into your own new or existing IRA and treat these assets as if they were your own. The benefit of this option is that both the amount and the timing of required distributions are based on your own age1. |
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| Better still, if you roll these assets into your own IRA, your MRD will generally be based on the
Uniform Lifetime Table, which assumes that distributions would extend over two lives-yours, and a beneficiary 10 years younger than you. With this option, your minimum required distribution would be lower than if you transferred your assets to an Inherited IRA Beneficiary Distribution Account. |
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Rolling over your inherited IRA assets can be advantageous if you have not yet reached age 70½, but your spouse had, for it enables you to stretch out the tax-deferral of IRA assets by delaying distributions until you reach age 70½. |
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If you are under age 59½, however, and you intend to take a distribution from your IRA, you will be subject to the 10% early withdrawal penalty in your IRA but would not be subject to this penalty in an Inherited IRA. |
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| Roll over and Convert Inherted IRA Assets to Your Own Roth IRA |
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| When you inherit your spouse’s IRA directly, you have the option of converting it into a Roth IRA in your name. The benefit of that is potentially tax-free growth of assets and Roth IRAs never have to have MRDs during the lifetime of the original owner. One drawback is the need to pay taxes on the amount converted from the non-Roth IRA into the Roth IRA. |
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Rolling over your inherited IRA assets and converting to a Roth IRA is more likely to be advantageous if you expect higher taxes in retirement and you can pay the taxes with money outside of the IRA being converted to the Roth IRA. |
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| Transfer Assets to an Inherited IRA |
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| You have the option of transferring the IRA assets you inherit from your spouse to an Inherited IRA. With an Inherited IRA, the: |
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Amount of your minimum required distributions (MRDs) will be based on your age and be recalculated each year based on the factors in the Single Life Expectancy Table |
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Timing of the initial distribution may be based on your spouse’s age at the time of his/her death; if your spouse was: |
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Older than age 70½, you must begin taking MRDs by December 31 of the year following your spouse's death |
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Younger than 70½, you may be able to delay MRDs until your spouse would have turned 70½ |
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| Transferring your assets to an Inherited IRA may be advantageous if: |
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You’re older than your spouse, and your spouse died before age 70½, since this option would allow you to delay taking the MRDs until the year your spouse would have turned age 70½ |
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You’re younger than age 59½ and you need access to these assets immediately, since you would not be subject to a 10% early withdrawal penalty |
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| Disclaim All or Part of Your Inherited Assets |
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If, after consulting with your attorney and tax advisor, you find that you will not need all or some of your Inherited IRA assets during your lifetime, you may want to disclaim—or refuse to inherit all or part—of your IRA assets. |
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Your disclaimed inheritance would then be passed on directly to the next eligible beneficiaries. Any required distributions would be based on the other beneficiary's age, rather than your own. |
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If the other beneficiaries are younger than you, you would, in effect, be stretching out the potential for tax deferred growth on this IRA legacy. For example, if your spouse named you as the primary beneficiary of his IRA, and your son as the contingent beneficiary, if you disclaim your IRA inheritance (meeting all the necessary requirements), your son would inherit all of the IRA assets. Since the required distributions would now be based on his life expectancy, the minimum required distribution amount would be lower, leaving more assets in the account to potentially compound tax-deferred. |
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| Be sure to consult with a tax or legal advisor concerning this option. |
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| Disclaiming all or part of your IRA inheritance may be advantageous if:
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You don’t need all or some of these assets and you’d like a younger beneficiary to be able to maximize the potential for tax-deferred growth by stretching distributions out over his/her lifetime, or |
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The decedent’s estate was not properly structured for estate tax purposes. A disclaimer may be used to allow assets that would otherwise be passed to the surviving spouse to go to other beneficiaries. While assets left to a spouse are generally not subject to estate taxes, they will be part of your estate upon your passing. If you can afford it and it aligns with your goals, you may want to consider disclaiming an amount up to the estate tax exemption limit in order to take advantage of your estate tax exemption. |
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| If you want to take advantage of this option, you must disclaim assets within nine months of the IRA owner's death-before you've actually taken possession of those assets. A disclaimer is an irrevocable decision to give up your right to inherit the IRA assets. |
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| Fidelity IRA custodial agreements specify that when either a beneficiary is not named or no named beneficiary survives the account owner, the assets first go to the IRA owner's surviving spouse, then to the IRA owner's estate if there is no surviving spouse2. |
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| Remember to update the beneficiaries for your IRA or your Inherited IRA Beneficiary Distribution Account. |
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