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I know all the facts we’ve gone over makes everything seem very cut and dried. It would seem there is no wiggle room to be found.

But the truth is widows have options when they inherit their spouse’s IRA. The options include:

1. Inherited IRA

2. Spousal Rollover

3. Remain a Beneficiary, or Do Nothing

4. Inherit through the estate

Bill Harris is a Retirement Management Advisor® (RMA®), a CERTIFIED FINANCIAL PLANNER™ practitioner (CFP®), a Master Elite Ed Slott Advisor, and author of ‘Inheriting Your Spouse’s IRA’. He is President of WH Cornerstone Investments, a financial advisory firm located in Kingston, MA. Learn more at

Bill Harris, RMA, CFP

Option One—Inherited IRA

The first option a spouse beneficiary can choose is to establish an “inherited IRA,” just as a non-spouse beneficiary can. If you select this path, you must move the money directly from your deceased spouse’s IRA to an inherited IRA account, which must be appropriately titled. Correct titling can vary slightly from custodian to custodian. Regardless of the variances, titling must include the name of the decedent and indicate that the account is an inherited or beneficiary IRA.

Here is an example:

John Smith (deceased 03/16/2020)

IRA; For the Benefit of Kate Smith.

Why would you go the inherited IRA route? There are a couple of reasons why. You are able to take penalty-free distributions from the account at any age and at any time. This option is particularly appealing for young spouses. The tax code would define “young” as anyone under the age of 59½.

In the case we mentioned of Charlotte Gee, she would have saved $100,000 in penalties if she had moved her husband’s IRA to an inherited IRA. When a surviving spouse chooses an inherited IRA, she is not subject to any mandatory distributions (Required Minimum Distributions or RMDs) until the later of December 31 of the year following the year in which her spouse died, or December 31 of the year her deceased spouse would have turned 72.

Option Two—Spousal Rollover

Another option for a spouse beneficiary is a spousal rollover. As the name implies, this option is available only to a spouse and not to other beneficiaries of IRAs. In this transaction, a surviving spouse executes a trustee-to-trustee transfer from the deceased spouse’s IRA and moves the funds directly to her own IRA. It is an irrevocable decision by a surviving spouse.

Once the funds are deposited in her own IRA, they are treated as if they had always been in the account. This is what Charlotte Gee chose to do. Unfortunately, her decision cut her off from penalty-free withdrawals.

Option Three—Remain a Beneficiary, or Do Nothing

A third option allows a spouse to do nothing. The lack of action will lead to the deceased spouse’s IRA being treated as the surviving spouse’s own. It has the same tax consequences as if the spouse had completed a spousal rollover. At some point, an RMD would eventually be due.

Option Four—Inherit through the estate

Inheriting through the estate is not exactly an option, but rather the consequence of poor planning. In this case, the deceased spouse did not name a beneficiary of their IRA. But, the spouse is the sole beneficiary of the estate. An exception exists for a spouse who is the sole beneficiary of an estate and who has complete control over the assets.

In this case, the spouse was not named a beneficiary on the IRA but rather prevailed via the probate process. The IRS has consistently ruled that, under those circumstances, a spouse beneficiary can direct payment of the IRA funds to the estate, direct the distribution of those funds out of the estate to her personal bank account and then do a rollover of the funds to an IRA titled in her own name.

Special Rules for Spouses Who Choose to Remain a Beneficiary

Harris ch 4-1

Several special rules exist for spouses who choose to remain a beneficiary. However, they exist only for spouses and no one else.

If the IRA Owner Died Before the RBD Date

No RMDs are due for the inherited IRA if the deceased spouse was younger than 72 and died before the Required Beginning Date (RBD) for initiating RMD withdrawals. When RMDs begin, spouses can recalculate their life expectancy each year using the Single Life Expectancy Table.


If you are not a sole spouse beneficiary, you cannot use the special rules for spousal beneficiaries. However, if you are a spouse beneficiary and other beneficiaries are named on the account, you can access the special rules by cashing out those beneficiaries and/or splitting out the account within a specific timeframe. (What does “splitting an IRA” mean? It merely means opening separate new accounts for each beneficiary.) These actions must occur during the “gap period,” which runs from when an IRA owner dies and December 31 of the following year.


Beneficiaries must be identified by September 30 of the year following the year of the IRA owner’s death.

Let’s look at an example:

Monica and Mike are married. Mike named his wife Monica (90%) and his son Brian (10%) as beneficiaries of his IRA. When Mike dies, Brian either needs to be paid out immediately, or the IRA needs to be split by December 31 of the year following the year of Mike’s death, for Monica to benefit from the special spousal rules.

If the IRA Owner Died On or After the RBD Date

If the IRA owner died on or after the Required Beginning Date (RBD) for initiating RMD withdrawals, the surviving spouse must take the owner’s RMD by December 31 of the year of the owner’s death, unless the RMD for the year had already been made. At that point, the surviving spouse has two options:

• Complete a spousal rollover (or just treat the account as her own), or

• Set up an inherited IRA.

Remember, RMDs must start being taken by December 31 of the year following the year in which the owner dies. How RMDs are calculated is described in a later section called “Calculating Required Minimum Distributions.” I’ve spoken a little about the Gap period; let’s dive a little deeper into what that means and how it will affect you.

Using the Strategic “Gap Period” to Advantage

After an IRA owner dies, the tax code lays out two critical dates:

• September 30 of the year following the year of the IRA owner’s death as the date when beneficiaries are determined.

• December 31 of the year following the year of the IRA owner’s death as the date by which the IRA can be split.

This “gap period” is an important planning period during which helpful strategic moves are possible:

• Accounts can be split,

• Beneficiaries can be cashed out.

• Disclaimers can be made.

For example, beneficiaries who formally drop off an account do not count as beneficiaries. They can be “dropped off” by splitting the account.

The Gap Period

Harris ch 4-2

Multiple Beneficiaries

If there are multiple beneficiaries, the inherited account can be split after death, which provides beneficiaries with the opportunity to take distributions as they wish. Ideally, the split needs to be completed by December 31 of the year following the year of the IRA owner’s death.

Trustee-to-Trustee Transfers

We always recommend a trustee-to-trustee transfer any time money is being moved between accounts. A trustee-to-trustee transfer is a transaction that occurs when moving retirement assets from one managing institution or custodian directly to another, or within the same custodian. It is usually done electronically.

By employing this type of transfer, the assets are not treated as reportable by the IRS, and no penalties or taxes are incurred. While a spouse can transfer funds indirectly, it must be completed within 60 days. Non-spouses do not have this option. The tax courts are littered with cases of people who took receipt of their funds indirectly instead of using the trustee-to-trustee transfer. It’s worth repeating: to avoid any issues, always use a trustee-to-trustee transfer where possible.

How is this done? The spouse beneficiary will submit a death certificate and other paperwork required by the custodian. The custodian will do a non-reportable transfer to a new inherited IRA. For a spouse beneficiary, upon reaching age 59½, she would advise the custodian that she wants to assume ownership of the inherited IRA. From that point on, she owns the IRA as if it were her own. (The custodian may require some paperwork to be filled out.)

A Split of an IRA for Non-spouse Beneficiaries

Let’s look at an example of a non-spouse beneficiary to better understand how splitting accounts can be strategic:

Ronald is an IRA owner who dies at age 73. Ronald has named his adult daughter, Katie, and a charity as IRA co-beneficiaries. Katie is a non-eligible designated beneficiary, but the charity is a non-designated beneficiary (NDB). If the account is not split by December 31 of the year after Ronald’s death, Katie must take her distributions over Ronald’s remaining life expectancy almost as if he had lived.

Under the Single Life Expectancy Table, Ronald’s remaining life expectancy is 14.8 years. Had the account been split, Katie would have been subject to the 10-year payout rule (a quicker payout).

If Ronald had been 83 when he died, his remaining life expectancy would be 8.6 (a shorter payout). However, with a split and separate account(s), Katie would get the benefit of the 10-year payout period.

If one of the co-beneficiaries is a Non-Designated Beneficiary (NDB), the individual beneficiaries should be advised to either pay out the NDB by the September 30 deadline or timely split the account.

That would allow the individual beneficiaries to reap the potential benefit of the more advantageous payout rules. The aforementioned example is often referred to as the Ghost Rule.

Here is a similar example:

Heidi named her adult son William and her favorite charity as equal beneficiaries of her IRA. Heidi dies in May at age 64. If the charity is paid out its share by September 30 of the year after the year Heidi died, only William will be left as sole beneficiary.

This will allow William to use the 10-year payout rule without splitting the account. However, if the charity is not paid out by September 30 of the year after the year Heidi died, and remains a beneficiary, William’s payout period will be cut in half, from ten years to five years.

Note: Pay special attention when splitting accounts.

While the IRS requires beneficiaries to be identified by September 30 of the year following the year of the IRA owner’s death, beneficiaries have three more months (until December 31) to split the account. However, guard that extra time carefully. Custodians do not always execute at warp speed when it comes to opening up new accounts.

Remember, you are trying to split an account at year’s end, and custodians are inundated with year-end requests.

You do not want to chance missing a December 31 deadline. Instead, get the split done by September 30 of the year after the IRA owner’s year of death. Better to be safe than sorry.

Using Beneficiaries as an Estate Planning Strategy

After the death of an IRA owner, where the surviving spouse is the beneficiary of the IRA, new beneficiaries should be named whether the IRA is made into an inherited IRA or is rolled over as a spousal rollover.

Naming beneficiaries is essential.

Assets pass directly to beneficiaries via contract law. Named beneficiaries also avoid probate. Designated beneficiaries can avoid taking any mandatory distributions for ten years. They have the option to take as little or as much as they want in years one through nine.

In year ten, they must drain the remaining account balance or be subject to a 50% penalty on the remaining balance. Ten years of allowing an inherited IRA to defer taxes is a long time and still a powerful estate planning tool.

Here is what this strategy would look like:

Sally and Mike are married, and both are age 60. Mike has an IRA valued at a million dollars at the time of his death. Sally is the sole beneficiary. Sally completes a spousal IRA and immediately names her daughter Melissa as her sole beneficiary. Unfortunately, Sally also dies soon after Mike. Melissa is now the owner of an inherited IRA worth one million dollars.

If Melissa defers distributions for ten years, at a mere 3%, that one million dollars could grow to $1,343,916. Had Sally not named a beneficiary, the account would have to be probated, and the estate would become the default beneficiary. The remaining IRA would need to be paid out within five years and would have lost the extra five years of compounding.

Note: it might not make sense to defer for ten years and then withdraw the entire balance and get a huge tax bill. An alternative strategy may have been to take smaller distributions each year over the ten years, thus minimizing the tax impact. In any case, naming beneficiaries buys time and gives options.

Prior to the SECURE Act: Naming beneficiaries was a strategic estate planning tool.

The “Stretch IRA,” which is a strategy and not a type of IRA, was in vogue. It is a wealth transfer method where you strategically pick the beneficiary you designate to inherit your IRA, giving priority to age.

Carefully implemented, this estate planning strategy allowed you to extend your IRA’s distributions over several generations (hence the name “Stretch IRA”).

The rules at that time allowed you to stretch the value of the IRA out over a longer period and reduce the amount of the taxable withdrawal.

So essentially, I could have been naming grandchildren or great-grandchildren as my beneficiaries because withdrawals were based on their life expectancy. As a result, the amount they would be required to withdraw each year would be much less than if the older children had been named. The SECURE Act essentially destroyed the “Stretch IRA” strategy.

Non-Eligible Designated beneficiaries can now only stretch an inherited IRA over ten years. Ten years is still a decent period, but it pales in comparison to the old rules. Pre-SECURE Act, an 8-year-old grandson could inherit Grandfather’s IRA and “stretch” distributions (RMDs) over 75 years. Under the new rules (post-SECURE Act), an 8-year-old grandson can still inherit Grandfather’s IRA, but now, he must empty the entire IRA by year ten.

A reminder of why you want to name beneficiaries:

Let’s look at why, in this internet age, it’s particularly important to name beneficiaries.

Charlie was notified by local police that his cousin Patty had had a stroke and fell and hit her head, and was near death.

Patty lived alone and did not have much family (or so she thought). When she died, Charlie became the personal administer of her estate. Her estate was basically worthless personal property, along with a $200,000 IRA. The requirements for an estate notice vary from state to state.

Writing an estate notice for a newspaper is a simple process that the personal representative of an estate follows. Its purpose is to notify creditors to whom the deceased owed money that they must make a claim against the estate to collect that money.

Little did Charlie know when he submitted the estate notice of Patty’s death that a forensic genealogist was lurking in the darkness.

You may be wondering what a forensic genealogist is? Also known as “heir hunters,” they are person-locating professionals. They comb the death notices in newspapers and start finding relatives who may be known or unknown. Heir hunters get a percentage of the estate that is entitled to the rightful heir.

Forensic genealogists investigate, create genealogies, establish family bloodlines, and produce a legal identification of an individual that can stand up to the exacting standards of proof required to present their results in court. Because of forensic genealogist’s work, Charlie and other known relatives quickly found out they had cousins all over the country with claims on the estate.

I hope you can see where I am going. Typical estate planning documents are crucial. Unfortunately, they may do very little for IRA heirs. IRAs pass via contract law. Named beneficiaries of the IRA are undisputed heirs and reign supreme. Sadly, Patty never named a beneficiary on her IRA. Therefore, it defaulted to her estate. As you may have guessed, she did not have any estate planning documents for her final wishes, either. Charlie, other known heirs, and several unknown cousins split the IRA. In the end, the heir hunter made out the best. The simple lesson is to name beneficiaries and contingent beneficiaries on your IRA. Check them regularly.

The Importance of Naming Designated Beneficiaries

(Eligible Designated or Non-Eligible Designated Beneficiaries) versus Non-Designated Beneficiaries

As previously mentioned (and it is worth repeating), spousal beneficiaries should name their own beneficiaries—one or many—as soon as possible after they inherit an IRA. The reason this is so important is they avoid any future problems, such as probate. Beneficiaries can be either living, breathing people, or not.

Beneficiaries of IRAs fall into two broad categories:

• Designated beneficiaries

• Non-designated beneficiaries.

The SECURE Act changed this by splitting the group of “designated beneficiaries” into two subgroups: eligible designated beneficiaries and non-eligible designated beneficiaries.

Eligible Designated Beneficiaries:

Eligible designated beneficiaries are individuals who are spouses of account holders or those who have a disability or chronic illness. They are not more than ten years younger than the decedent, minor children of decedents, and certain “See-Through” trusts.

Non-Eligible Designated Beneficiaries:

A non-eligible designated beneficiary is any individual who qualifies as a designated beneficiary but is not on the list of eligible designated beneficiaries.

Non-Designated Beneficiaries:

Non-designated beneficiaries are non-person entities, such as most trusts and charities.

The rules for mandatory distributions are different for each type of beneficiary. They are best described in the chart on the next page (below).

Harris ch 4-3

In addition to ensuring that one’s intentions are being carried out as expected by contract law, naming someone a designated beneficiary offers at least ten years of tax deferral.

A non-designated beneficiary (non-person entities) would not have that advantage.

Instead, it would have to empty the accounts and pay taxes on the distributions according to the 5-year distribution rule. If part of an estate, the entire IRA balance would have to be distributed to the beneficiaries of the estate by the end of the fifth year following the year of the surviving spouse’s death.

As previously mentioned, an exception exists for a spouse who is the sole beneficiary of an estate and who has complete control over the assets.

IRS Rulings

The IRS has consistently ruled that, under those circumstances, a spouse beneficiary can direct the payment of the IRA funds to the estate, direct the distribution of those funds out of the estate to her personal bank account. And then do a rollover of the funds to an IRA titled in her own name. Upon completion of a transaction like this, it is as if the funds had been in the surviving spouse’s IRA all along.

Why would a spouse go through all these hoops to get money back into an IRA in her own name? It all depends on the size of an IRA. IRAs are infested with taxes. Big IRAs come with big tax bills. If not rolled over to the spouse, the IRA must be paid out within five years. For larger IRAs, this will result in a huge tax bill. Let’s pause for a quick second. Notice I mention, “The IRS has consistently ruled that…”

Many unhappy inheritors went to court with the IRS over this issue. Obviously, these were last-ditch efforts with huge impending tax burdens. You typically do not go to court over small tax bills. Going to tax court costs money. You’ll need legal representation and a CPA/accounting firm to assist you. Another alternative to tax court is a Private Letter Ruling or PLR. A PLR is a written statement issued to a taxpayer that interprets and applies tax laws to the taxpayer's represented set of facts. Like tax court, drafting a

Private Letter Ruling request and actually securing a ruling involves a great amount of time and skill of other professionals. Because a tax attorney or some other type of specialist usually prepares a taxpayer's ruling request, costly professional fees are the rule rather than the exception. On top of that, IRS charges filing fees for PLRs. For an IRA, the filing fee is $10,000. The bottom line, and it’s worth repeating, name proper beneficiaries and avoid this type of mess.

The above article originally appeared as a chapter in Inheriting Your Spouse's IRA and is reprinted with permission from the author Bill Harris, RMA®, CFP®. No parts of this article may be reproduced without correct attribution to the author of this book.

You can find the full book here.