Why Your Spouse May Be Your Best Option as an IRA Beneficiary

Since a surviving spouse gets the most tax breaks of all possible beneficiaries (other than a charity, perhaps), it seems that choosing your spouse as the beneficiary of your IRA may be the best way to go.

This is partly due to the availability of delaying taking distributions.  Any other beneficiary must begin taking Required Minimum Distributions (RMDs) by the end of the year following the year of the original IRA owner’s death.  The spouse beneficiary may defer distributions to the year in which the deceased would have reached age 70½, without taking any action.

In addition, any other beneficiary besides the spouse is required to take the RMDs over his or her fixed-term single-life expectancy, while the spousal beneficiary can choose to take the RMDs over his or her single-life expectancy recalculated annually, so that the distributions will actually stretch out over his or her entire life.  The fixed-term single-life expectancy winds up ending sometime in the beneficiary’s 80’s.

And the best part of all is that the surviving spouse beneficiary can choose to rollover the IRA to an IRA in his or her own name, which could have the effect of delaying the start of RMDs even further, if the spouse beneficiary is younger than the decedent.  When this option is chosen, the surviving spouse could also choose to roll the IRA into a Qualified Retirement Plan (QRP) such as a 401(k).  If the surviving spouse is still working for this employer past age 70½, RMDs could be delayed even further – up until the surviving spouse retires.

An added bonus to the option of the surviving spouse using a rollover, he or she can name another designated beneficiary of this rolled over IRA, providing flexibility to the overall process.  Plus, with an IRA in his or her own name, when the time comes to begin RMDs, the surviving spouse can use the Uniform Lifetime Table (instead of the Single Life Table) which will allow for further stretching of the benefits, potentially far beyond his or her lifetime.

Estate tax on such a move is likely to be nil, due to the marital deduction.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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