Most people will want to name their spouse as the beneficiary of their IRA. In this article, we will explore:
- Death of Participant Before Required Beginning Date with Spouse as Beneficiary who Rolls Plan into Spouse’s IRA
- Death of Participant Before Required Beginning Date with Spouse as Beneficiary who Maintains IRA
- Death of Participant Before Required Beginning Date under the 10 Year Rule
- Death of Participant After Required Beginning Date
- Death of Participant with a Conduit Trust as Beneficiary
- Death of Participant when Spouse Dies After Participant
- Qualified Charitable Distributions
Death of Participant Before RBD with Spouse as Beneficiary who Rolls into Spouse’s IRA
In 2024 and later years, if the surviving spouse is the sole beneficiary, they may move the IRA assets into their own IRA and treat them as their own.
This strategy resets the clock on required minimum distributions and means the assets will not need to be withdrawn until the surviving spouse’s own required beginning date. This is especially beneficial if the surviving spouse is younger than the decedent.
Required minimum distributions for the surviving spouse will be delayed until the deceased spouse would have reached the age at which distributions would have commenced if they were still living. This is age 73 or 75, depending on their birth year.
You are able to keep the tax-deferred status of the IRA and name your own beneficiaries.
Beginning in 2024, if the surviving spouse is the sole beneficiary, they can use the Uniform Lifetime Table instead of the Single Life Table. This provides lower required minimum distributions and allows the surviving spouse to spread distributions over a longer period.
For clients in this situation, the advantages can be significant. Delaying distributions from the younger deceased spouse’s IRA allows the account to continue growing without being taxed. Over time, this can result in additional value for the surviving spouse between the original owner’s death and the date when distributions must begin.
If the spouse is under age 59 and a half, the 10% penalty on early withdrawals may still apply.
Once the surviving spouse elects to roll over the IRA into their own name, it is irrevocable.
Death of Participant Before RBD with Spouse as Beneficiary who Maintains IRA
The surviving spouse can transfer the assets into an inherited IRA with the option to begin taking withdrawals even if they are younger than 59 and a half.
There is no 10% early withdrawal penalty on distributions from an inherited IRA.
Distributions would begin at the original owner’s required beginning date or immediately if that date had already passed.
Distributions would be based on the longer of the surviving spouse’s life expectancy or the remaining life expectancy of the deceased original owner.
The spouse can elect to be treated as a beneficiary of the Inherited IRA and later roll the assets into their own IRA, but not the other way around.
Death of Participant Before RBD with Spouse Electing the 10-Year Rule
Instead of rolling over the IRA or maintaining it as an inherited IRA, the spouse may use the 10-year rule. The account must be fully withdrawn by the end of the tenth year following the IRA owner’s death. For example, if the IRA owner dies in 2023, the entire account must be emptied by December 31, 2033.
Under the 10-year rule, distributions are not required each year. The entire balance just has to be distributed by the tenth year.
If the spouse uses the 10-year rule and then rolls the IRA into their own account before the ten years are up, and they have reached their own required beginning date, they may be required to take distributions that would have been required had they owned the account the whole time.
If the plan document defaults the spouse into the 10-year rule, the spouse can roll the assets into another plan of their choosing.
Death of Participant After RBD
If the participant dies after their required beginning date, distributions must continue at the same pace or faster. In the year of death, the participant’s required minimum distribution must still be taken and paid to the beneficiary.
After that, the spouse must continue taking required minimum distributions based on either the decedent’s life expectancy or their own.
Death of Participant with Conduit Trust as Beneficiary
If a conduit trust is established for one individual beneficiary and that person is the primary beneficiary, then all contingent or residual beneficiaries are disregarded. The required minimum distribution is calculated as if the IRA were payable directly to that individual.
If the spouse is named as the primary beneficiary of a conduit trust, distributions will follow their life expectancy, recalculated annually. If the participant dies before the required beginning date and the spouse is named as the beneficiary, distributions will begin when the participant would have reached their applicable age.
Death of Participant when Spouse Dies After Participant
If the participant dies and names their spouse as the beneficiary, and the spouse dies before reaching their own applicable age, the successor beneficiary will need to take distributions based on the surviving spouse’s remaining life expectancy. However, this applies only if the spouse dies in a year after the deceased participant would have reached their applicable age.
If the spouse dies before distributions have started and before the year the original participant would have reached their required beginning date, then a different result occurs. If the spouse had not named a beneficiary, the five-year rule applies.
To avoid this, the spouse should name a designated beneficiary. If the spouse names children, they will receive the ten-year rule. If no beneficiary is named, the plan’s default rules apply. This often means the spouse’s estate will inherit the account, and the five-year rule will apply.
The spouse can roll the IRA into their own account to ensure the beneficiary receives the ten-year rule or potentially better treatment.
Qualified Charitable Distributions (QCDs)
If you are age 70 and a half or older and are charitably inclined, consider Qualified Charitable Distributions. You can donate up to 105,000 in 2024 from your IRA directly to a qualified charity. This amount will not be counted as taxable income. At the required beginning date, QCDs can also satisfy your required minimum distribution and reduce your tax liability.
However, any amount donated over your required minimum distribution for that tax year cannot be applied toward future required minimum distributions.
While these funds are no longer available for heirs, QCDs can fulfill your charitable goals while reducing the size of your taxable IRA.
Conclusion
Naming your spouse as beneficiary typically aligns with estate planning objectives. Make sure to name a successor beneficiary in case the spouse passes away first.
Abbreviations and Terms Used in This Article
RBD: Required Beginning Date. This is the date by which the account owner must begin taking lifetime required minimum distributions from retirement accounts.
RMD: Required Minimum Distribution. The minimum amount that must be withdrawn annually from certain retirement accounts.
Applicable Age: The age at which the account owner must begin taking required minimum distributions. This age has changed over time due to legislation.
- Born before July 1, 1949: Age 70 and a half
- Born July 1, 1949 through December 31, 1950: Age 72
- Born 1951 through 1959: Age 73
- Born 1960 or later: Age 75
QCDs: Qualified Charitable Distributions. A way to donate directly from an IRA to a charity without counting the amount as taxable income.
