Inheriting an IRA From Your Spouse? Here's Why You May Not Want to Roll That Money Into Your Own Retirement Account.
Key Points
If you roll the IRA into your own, you typically cannot access the funds without penalty under 59 1/2.
There are other withdrawal options you can also consider, including the 10-year rule and the RMD rule.
Understand how each strategy will affect your inheritance and your tax bill before deciding which is best for you.
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Losing your spouse is one of the most difficult experiences anyone can go through. You're grieving, but you're also trying to sort out their affairs, including their old IRA.
If they left that money to you, it might seem like the simplest thing to do is roll it into your own IRA. This is definitely an option to consider, but it can backfire on you if you're not careful.
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Once you've moved your inherited IRA funds into your own retirement account, you typically cannot access the funds without penalty until you reach age 59 1/2. There are exceptions for things like large medical expenses, but you won't be free to just take the money out at will.
If you want more flexible access to your inheritance, you might prefer a different strategy, like the 10-year rule. This gives you until the end of the 10th year after the year your spouse died to withdraw all funds from the inherited IRA. There's no rule about how much you must withdraw each year.
You can also opt for the required minimum distribution (RMD) rule. This lets you spread withdrawals out over your lifetime, but it requires mandatory annual withdrawals. It could be the right choice if you don't need the money now and want to allow your investments to grow while still retaining access to the funds.
You cannot switch back and forth between the 10-year rule and the RMD rule, so you must choose one and stick to it. Think about what you plan to use the money for and how your withdrawals could affect your tax bill to decide which is right for you.
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