Naming Your Spouse to Inherit Retirement Accounts

Leaving your IRA to your spouse is usually a good choice, for several reasons.

When you create an IRA or enroll in a 401(k) plan, the forms you fill out will ask you to name a beneficiary. You will probably also be given the opportunity to name an alternate (sometimes called secondary or contingent) beneficiary, who will inherit the money if your first choice dies before you do.

Most married couples name each other as beneficiaries—a good choice, because a surviving spouse who is the sole beneficiary has more flexibility about what to do with the money than do other beneficiaries. Unlike other beneficiaries, a surviving spouse, in some cases, can keep  all  the money tax-deferred at least for a while. (This isn't a concern with the Roth IRA, because withdrawals generally aren't taxed.)

If you want to name someone other than your spouse as beneficiary, make sure you don’t run afoul of state and federal laws designed to protect surviving spouses. (See “If You Don’t Want to Leave Retirement Accounts to Your Spouse.”)

A Surviving Spouse’s Options

A surviving spouse who is the sole beneficiary of a retirement account has two options: rolling over the account or leaving it as it is, as an “inherited IRA.” For the most part, it doesn’t matter whether the account owner died before or after reaching the age at which required minimum withdrawals must begin. There is, however, one significant exception: If the minimum withdrawals have become required, then the surviving spouse must make the withdrawal for the year of death. After that, he or she can exercise one of the following choices.

Roll Over the Account

A spouse can roll over the money in an IRA or qualified plan such as a 401(k) to her own IRA (new or existing). To do that, the spouse needs to contact the retirement account administrator and complete some paperwork.

Once the account has been rolled over, everything is just as if the surviving spouse were the original owner. The surviving spouse can name a beneficiary to inherit the funds at her death. Required minimum distributions will begin when she reaches age 70

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