Not all assets are inherited in the same way. Take IRAs, for example. When does the IRA of your deceased spouse become “yours,” what should you do with it, and what do you need to know to stay out of tax trouble?
The Slott Report addressed the consequences of when a surviving spouse inherits the IRA of their deceased spouse and both have reached age 70 ½, the age for Required Minimum Distributions (RMDs). The article titled “Inherited IRA: When do You Own It?” noted that one must be very careful.
For starters, the inheriting spouse must be the “designated” beneficiary. Assuming that is the case, what happens when your spouse dies in December and has not withdrawn the required RMD? Must you as the surviving spouse calculate your RMD on both account balances, your spouse’s and your own?
RMDs are always tricky because the penalties are steep, with a 50% penalty tax on the amount required but not taken. Bottom line: be sure to get competent legal and tax advice before proceeding if you are the designated beneficiary of an inherited IRA.
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Reference: The Slott Report (May 6, 2013) “Inherited IRA: When do You Own It?”