Advanced Underwriting Consultants

Ask the Experts – October 21

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

 Question:  Can a surviving spouse choose to treat her deceased spouse’s IRA as an inherited IRA and subsequently roll over the entire IRA into her own account?

Answer: Yes. When a spouse dies leaving his IRA to his surviving spouse, the spouse has a few ways to treat the IRA.

One option is to treat it as an inherited IRA. In doing so, the surviving spouse can withdraw funds from the IRA at any point without subjecting herself to the 10% early withdraw penalty, regardless of her age. She must take RMDs based on her lifetime; however, such distributions are not required until her deceased spouse would have reached age 70½.

A surviving spouse also has the option to assume the IRA, whereby she rolls the entire IRA into her own account. This option is only available to the surviving spouse of the deceased IRA owner. Assuming the IRA would allow her to wait until she, herself, is 70½ years old before taking RMDs. However, any withdrawals before she reaches age 59½ could be subject to the 10% additional tax.

There’s nothing in the Code or Regulations that sets a deadline for spousal assumption after a spouse inherits an IRA. Even if the surviving spouse decides to withdraw an amount from the inherited IRA, she could subsequently roll over the remaining balance into her own IRA. Additionally, she could decide to roll over only a portion of the inherited IRA and leave the rest in her spouse’s IRA. The rules are quite flexible for surviving spouses.

 Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.