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Ask the Expert: Steps to take for the beneficiary of an IRA

I’m 75 years old and have two IRAs at a local bank. I’ve been taking required minimum distributions (RMDs) for several years. My wife is 73, and my IRA beneficiary. If I die first, what steps must she take to become the owner of these accounts? Will she then have to continue taking RMDs? Will she be able to choose another beneficiary?

When she gives the bank a copy of your death certificate, at her request it will transfer your IRA into a new IRA in her name. As the new owner, she can designate her own beneficiary.

Alternatively, she could ask the bank to transfer it into an inherited IRA, keep it in your name and draw on it as a beneficiary.

These options are subject to different rules. The best choice depends on a surviving spouse’s age and financial situation. Let’s say John dies at 60 and his 55-year-old widow Mary inherits his IRA. If she remains a beneficiary, she can draw on the IRA before turning 59 1⁄2 without owing an early withdrawal penalty on the distributions; and she can postpone taking RMDs until John would have turned 70 1⁄2. By contrast, as the IRA owner, she’d be penalized on distributions taken before age 59 1⁄2; but she can delay RMDs until she turns 70 1⁄2.

Since you’re both over 70 1⁄2, your wife has no reason to remain a beneficiary after your death. If you didn’t take your annual RMD before your death, she must take that distribution. Thereafter, she must take annual RMDs based on her own life expectancy.

(Other readers take note: The above rules are for surviving spouses. Different rules apply to non-spouse IRA beneficiaries!)

The bottom line: A surviving spouse can become the new owner of an inherited IRA. More information:

nwsdy.li/irsrmdtips

nwsdy.li/beneficiaryinfo

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