Surviving Spouse Beneficiary of IRA Account

By | December 6, 2015

What happens when a surviving spouse inherits an IRA account?

A surviving spouse can roll over the balance from a deceased spouse’s eligible retirement plan into his or her own eligible retirement plan account. He or she can also elect to treat a deceased spouse’s IRA as his or her own. In such a case, the IRA distribution rules are applied with the surviving spouse as the owner. These options are available whether the participant died before or after minimum required distributions (RMDs) had begun.


Example of Spouse Inheriting IRA Account

For example, a surviving spouse/administratrix was allowed to roll over a decedent’s (husband’s) previously withdrawn IRA distributions to a new IRA established in the name of the decedent within sixty days of the withdrawal. However, since the decedent had not posthumously named the surviving spouse as a beneficiary of the newly established IRA, the surviving spouse was not eligible to treat the IRA as her own. A surviving spouse who neither rolls distributions over nor elects to treat the IRA as his or her own must take distributions from the account based on the RMD rules.

Surviving Spouse Inheriting IRA

The surviving spouse can elect the roll over option even after receiving minimum required distributions (RMDs) in more than one year. The ruling also stated that even though the surviving spouse was under age 591/2 when the RMDs were received, the later election to roll over the IRA did not subject the distributions to the early distribution penalty. The IRA was treated as a continuation of the deceased spouse’s IRA until the actual rollover was made. After the rollover, it was treated as the surviving spouse’s IRA.


Naming Spouse as Beneficiary of an IRA Account

A surviving spouse must generally be named as the direct beneficiary of the account to qualify for rollover treatment. If the surviving spouse receives the distribution through the decedent’s estate (i.e., the decedent named his or her estate as the beneficiary), the distribution may be treated as received from a third party. Generally, this prevents the surviving spouse from taking advantage of the special rollover provisions. However, the IRS has made some exceptions.

Surviving Spouse Inherited IRA

For example, the IRS privately ruled that a surviving spouse who (1) was the named beneficiary for 75% of an IRA, (2) received the remaining 25% through the decedent’s estate, and (3) was the sole executrix of the estate could treat the entire account as being received from the decedent with none from the estate. The same outcome was reached where the surviving spouse was the sole executrix and beneficiary of the decedent’s residuary estate. The rollover must occur no later than the 60th day after the date of distribution to the estate.