My wife, aged 53, passed away in September this year. I am 71. I am the beneficiary of her (traditional) IRA. I understand that I have 4 choices:
1. Treat the IRA as my own, by becoming the owner.
2. Roll it into one of my existing IRAs.
3. Roll it into an annuity plan.
4. Remain as beneficiary of the IRA (I suppose my wife would continue to be the "owner"?)
- What are the tax implications of each choice?====>>for the choice 1,you can transfer the existing IRA into your name and defer distributions until RMDs are required .So,Once you hit age 70?, or the year following the owner's death, whichever is later. the IRS requires you to start withdrawing from the ira. and paying taxes on the irs
Choice 2;once you choose to roll over the inherited IRA assets to your own IRA, the rules for RMDs will apply. So, you must withdraw a certain amount of money from your IRA, including inherited assets, each year once you reach age 70?. So,Once you hit age 70?, the IRS requires you to start withdrawing from the ira. and paying taxes on the irs
choice 3; buying,transferring an annuity with IRA money is the same as moving your money from its current IRA trustee to another IRA trustee. This kind of transaction is considered a direct transfer or a direct rollover which is tax-free. You will owe taxes on the monthly income you receive but not on the transfer.
choice 4; the benefits of this type of election work in the limited situation where your spouse dies well before the age of 70 ?,the time when she would have to have begun taking RMDs.Leaving the account as is allows you,the surviving spouse, to defer taking RMDs until the deceased spouse would have been required to do so. you can then take distributions from the account without incurring the 10% early withdrawal penalty. This choice is generally not the most tax-efficient way to handle the inherited account, but it?s the simplest way.
the problem with this choiceis; Your required annual minimum withdrawal calculation for each year must be made using your single life-expectancy as the divisor. With this option , you?ll wind up with a smaller divisor, bigger minimum withdrawal amounts and more taxes.
- My wife did not have to take Required Minimum Distribution. Do I have to? ======>>as said above, in your case no. Leaving the account as is allows you,the surviving spouse, to defer taking RMDs until the deceased spouse would have been required to do so.
Can I avoid taking RMD if I opt for choice #4?
- If I choose choice #4, how do I indicate to the IRS that I am doing so====>>yes in your casesince, your spouse passed away well before the age of 70 ?,the time when she would have to have begun taking RMDs.