Dealing with the loss of a spouse is never an easy experience. Yet, aside from the emotional trauma, you'll also have to deal with the property left by your loved one. It is not uncommon for a spouse to pass away while having a retirement account, such as an IRA. This type of account can be inherited by the surviving spouse. Learn about the special rules involved when you stand to inherit the proceeds of an IRA.
Take Advantage of the Benefits
First, you should know that there are some special rules that make it easy for spouses to inherit an IRA. Regardless of the beneficiary designation, a surviving spouse has a good chance at receiving some monetary value from the account.
Once a spouse inherits part or all of the IRA, there are several different ways to proceed. The surviving spouse can choose to transfer the funds into an inherited IRA. It's also possible to roll over the money into the spouse's own IRA. In addition, a surviving spouse can reject the inheritance and allow the money to flow to the next beneficiary in line.
Thinking About Withdrawing?
If you choose to withdraw the funds, be aware of the tax considerations. In general, a person must wait until they are almost 60 years old to carry out a tax free withdrawal. Fortunately, this rule does not apply to surviving spouses. Instead, these individuals are allowed to withdraw money (at any age) without any additional penalty. However, the amount will still be subject to federal taxes. Thus, it will be treated as income tax.
A Bit About Inherited IRAs
Out of the three options presented to a surviving spouse, the inherited IRA may be easily overlooked. Nonetheless, this option provides a way to control the funds without suffering a withdrawal penalty. Those who are still under the required age can convert a deceased spouse's IRA into an inherited IRA. This process is completed by the existing trustee for the account. Once done, you will be able to take distributions on a yearly basis. To learn more about this opportunity, you may want to consult with an estate law attorney.
One More Piece of Advice
As a Utah resident, there are a couple of tax benefits when it comes to inheritance. First, Utah does not have an inheritance tax at the state level. In addition, Utah does not levy an estate tax. Even though federal taxes may still apply, these state tax breaks can be a big help to surviving spouses. To learn about all of the estate or tax implications of inheritance, it is important to speak with an experienced lawyer.
To learn more about estate law, contact us at TR Spencer & Associates.