Inheriting Your Spouse’s IRA? Don’t Stretch, You Might Have Better Options: Ask The Hammer: If I inherit my spouse’s IRA, can I still use the stretch IRA? In this episode of “Ask The Hammer,” Jeffrey Levine from Buckingham Wealth Partners answers the question:
- If someone inherited their spouse’s IRA, can they still use the stretch IRA?
Jeffrey “The Buckinghammer” Levine discusses utilizing the stretch IRA from inheriting a spouse’s IRA. He highlights special rules for spouses and new rules in 2024. Spouses inheriting an IRA have unique benefits compared to other beneficiaries. You may not need the “stretch IRA” strategy because you can:
- Delay required minimum distributions (RMDs): Wait until the deceased spouse’s age to start taking RMDs, potentially decades later.
- Rollover the IRA into your own: Consolidate accounts and manage them like your own, with some limitations.
The best option depends on your age and the deceased spouse’s age. A financial advisor can help navigate the nuances and make informed decisions during this emotional time. Levine says that someone may be able to stretch, but they may not even have to worry about that because, as a spouse, they have special rules that apply to them that no other beneficiary has. One of those rules says if someone sets up an inherited IRA as the surviving spouse, they don’t have to take RMDs until the deceased spouse has needed to start taking their RMD. A spouse can also move an inherited IRA into their own IRA, and no other beneficiary can do that. The spouse could take those inherited IRAs and instead of being a beneficiary and stretching, they could move it into their own IRA and take distributions as an owner of the account, which in some ways is similar to the stretch in that they have to take a little bit each year, but it’s a bit different because it’s calculated as if they were the original owner of the account, so RMD’s are less than they would be as a beneficiary. When it comes to preferences between using it as an inherited account versus rolling it, Levine explained there are new rules that apply in 2024. In general, a spouse who is younger than 59 1/2 when they inherit typically wants to leave it as an inherited IRA until at least age 59 1/2 because that gives them penalty-free access to the money. If they move it to their own IRA and they’re younger than 59 and a half and they later need the money before reaching 59 and a half, there would otherwise be a 10% penalty on that amount in addition to regular income tax.
Watch the full video “Inheriting Your Spouse’s IRA? Don’t Stretch, You Might Have Better Options” for more details! Catch all of the Ask The Hammer episodes at this link: https://www.finstream.tv/videos/ask-the-hammer/