What happens when my wife inherits my IRA?

When a spouse inherits an IRA, they have special, flexible options compared to other beneficiaries, primarily treating it as their own (rollover/assume ownership), opening a new inherited IRA, or taking distributions, with significant tax advantages like delaying taxes or avoiding the strict 10-year rule, allowing for lifetime withdrawals, though rules depend on if the original owner started Required Minimum Distributions (RMDs) and the IRA type (Roth vs. Traditional). The main choices are rolling it into your own IRA (treating it as yours), opening an inherited IRA (beneficiary), or taking a lump-sum withdrawal, with tax-deferred growth/tax-free Roth withdrawals depending on the original account.

What are the rules when a spouse inherits an IRA?

For a spouse beneficiary of an IRA, the rules offer great flexibility: they can "assume" the IRA as their own (treating it like their own account, with distributions starting at their own RMD age) or keep it as an inherited IRA (delaying RMDs until the deceased owner would've turned 72 or taking them based on their own life expectancy), avoiding the standard 10-year rule, notes IRS and Bankrate https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary,. The key is to choose the option that best suits their financial and tax situation, with the ability to roll over funds to their own IRA or manage it as an inherited account, often deferring mandatory withdrawals significantly. 

Do beneficiaries pay tax on IRA inheritance if you?

Yes, beneficiaries usually pay taxes on inherited IRA distributions, but the amount and timing depend on the IRA type (Traditional or Roth) and the beneficiary's relationship to the deceased, with most non-spouse beneficiaries facing the 10-Year Rule requiring full withdrawal by the 10th year, taxed as ordinary income. Spouses have more options, and Roth IRA withdrawals are generally tax-free if the 5-year rule is met. 

What is the best thing to do with inherited IRA?

What to do with an inherited IRA

• "Disclaim" the inherited retirement account.
• Take a lump-sum distribution.
• Transfer the funds into your own IRA.
• Open a stretch IRA.
• Distribute the assets within 10 years.
• Distribute assets received through a will or estate.

Does surviving spouse have to take RMD from inherited IRA?

Yes, a surviving spouse generally must take Required Minimum Distributions (RMDs) from an inherited IRA, but has special flexibility: they can roll it into their own IRA and delay RMDs until their own age, treat it as an inherited IRA and use the deceased's age (if younger) or their own life expectancy, or empty it in 10 years if the deceased was not taking RMDs, with the year-of-death RMD always being a potential requirement if the owner died after turning age 73. The key is that spouses are "Eligible Designated Beneficiaries" (EDBs) and avoid the strict 10-year payout rule for most others, allowing for life-expectancy distributions. 

Inherited IRA? Here’s How to Outsmart the IRS and Keep Your Cash

What is the disadvantage of an inherited IRA?

The downside is that there's a 10% penalty on withdrawals before age 59½, and there might be accelerated RMDs if the surviving spouse was older than the deceased spouse.

What is the biggest RMD mistake?

The biggest RMD mistake is missing the deadline or failing to withdraw the full required amount, incurring a significant 25% IRS penalty (which can be reduced to 10% if corrected within two years) on the under-withdrawn portion. Common related errors include waiting until December, miscalculating the amount, forgetting rules for inherited IRAs, or incorrectly combining RMDs from different accounts. 

Does an inherited IRA have to be cashed out?

Yes, if you inherit an IRA, you likely have to take distributions, generally emptying the account within 10 years (the 10-year rule for most non-spouses). For those inheriting from owners who were already taking Required Minimum Distributions (RMDs), you must also take annual RMDs within that 10-year window, starting the year after death, with the whole balance gone by year 10. Spouses have more flexibility, while minor children have different rules, but the overarching requirement is to follow IRS guidelines, often involving the 10-year rule and annual RMDs. 

Is $500,000 a big inheritance?

$500,000 is a big inheritance. It could have a significant impact on your financial situation, depending on how it is managed and utilized. As you can see here, there are many complex, moving parts involving several financial disciplines.

What is the first thing you should do when you inherit money?

Assess Your Financial Situation

It's important to determine your overall wealth once you receive inherited money. Before you spend or give away any money or assets, decide to move, or leave your job, your Wealth Advisor should help you decide what to do with inheritance money.

What is the difference between a spousal IRA and an inherited IRA?

A Spousal IRA helps a working spouse contribute for a non-working one while both are alive, building savings; an Inherited IRA (Spousal Rollover) happens after death, allowing the spouse to treat the deceased's IRA as their own (delaying RMDs, adding beneficiaries) or keep it as an inherited account with different rules, but crucially, it's for distribution, not new contributions, offering penalty-free access before 59½ unlike a regular IRA. The key difference: Spousal IRA = building savings (while alive); Inherited IRA = managing inherited funds (after death). 

What are the IRS rules for surviving spouse after death?

Taxpayers can claim the qualifying surviving spouse filing status if all of the following conditions are met: You were entitled to file a joint return with your spouse for the year your spouse died. Have had a spouse who died in either of the two prior years. You must not remarry before the end of the current tax year.

What is the new rule for inherited IRAs?

New inherited IRA rules, largely from the SECURE Act, require most non-spouse beneficiaries to empty the account within 10 years (the 10-year rule), replacing the old life-expectancy "stretch" option, with a key 2025 change mandating annual withdrawals if the original owner was taking RMDs. Spouses still have flexibility to treat it as their own, while exceptions to the 10-year rule (Eligible Designated Beneficiaries like disabled/chronically ill/minor children) have different rules.
 

How do I avoid paying taxes on an inherited traditional IRA?

One inherited IRA tax management tip is to avoid immediately withdrawing a single lump sum from the IRA. Instead, wait until RMDs are due, or, if you got the IRA from a non-spouse, stretch withdrawals over 10 years. RMDs are taxable and can change your tax bracket and increase your overall tax burden.

Is it better to assume or inherit an IRA?

"Assuming" an IRA (a spousal transfer) lets a surviving spouse treat it as their own, resetting RMDs to their life expectancy, while "inheriting" usually means setting up an inherited IRA as a beneficiary, with stricter RMD rules (often a 10-year payout for non-spouses) or the option to cash out, but assuming offers greater flexibility, allowing for continued contributions and tax deferral like a personal account. The key difference: assuming makes it your IRA; inheriting keeps it an inherited IRA with specific beneficiary rules. 

What are the new rules for spousal IRAs?

Opening and contributing to a spousal IRA essentially allows you and your spouse to double your IRA contributions each year. Rather than being able to save $7,500, which is the 2026 contribution limit (up from $7,000 in 2025), you can save $15,000.

What are the six worst assets to inherit?

The Worst Assets to Inherit: Avoid Adding to Their Grief

• What kinds of inheritances tend to cause problems? ...
• Timeshares. ...
• Collectibles. ...
• Firearms. ...
• Small Businesses. ...
• Vacation Properties. ...
• Sentimental Physical Property. ...
• Cryptocurrency.

What is the average 401k balance for a 65 year old?

For a 65-year-old, the average 401(k) balance is around $299,000, but the more representative median balance is significantly lower, at about $95,000, indicating many high savers pull the average up, with balances varying greatly by individual savings habits, income, and other retirement accounts. 

What's the best thing to do with an inherited IRA?

As a spouse, you'll have the choice of moving the inherited balance into an inherited account or combining it with your own accounts. Deciding what's best for you will depend on your age, expected retirement date, tax considerations, immediate need for cash, and any need for creditor protection.

Can I avoid RMDs legally?

You don't have to take RMDs from your workplace retirement plan if you're still working and own less than 5% of the company. Qualified charitable distributions (QCDs) fulfill your RMD requirement while letting you avoid extra taxes. Doing a Roth IRA conversion now could reduce your RMD for next year.

What happens when a spouse inherits an inherited IRA?

When a spouse inherits an IRA, they have unique, flexible options, including treating it as their own (rolling it into their IRA for life-based withdrawals), keeping it as an inherited IRA (using their life expectancy or the 10-year rule if the original owner died before the Required Beginning Date), or taking a lump sum, generally avoiding the 10-year rule and early withdrawal penalties, allowing for tax-deferred growth over time, notes Northwestern Mutual, TIAA, and IRS. 

What is the number one regret of retirees?

Among the biggest mistakes retirees make is not adjusting their expenses to their new budget in retirement. Those who have worked for many years need to realize that dining out, clothing and entertainment expenses should be reduced because they are no longer earning the same amount of money as they were while working.

Can I retire at 62 with $400,000 in 401k?

You can retire at 62 with $400k if you can live off $30,200 annually, not including Social Security Benefits, which you are eligible for now or later.

What is the most overlooked tax break?

The 10 Most Overlooked Tax Deductions

• Out-of-pocket charitable contributions.
• Student loan interest paid by you or someone else.
• Moving expenses.
• Child and Dependent Care Credit.
• Earned Income Credit (EIC)
• State tax you paid last spring.
• Refinancing mortgage points.
• Jury pay paid to employer.