Surviving Spouse Can Roll Over IRA Into His or Her Name

Q:

I have three questions regarding estate taxes and IRAs. If a spouse leaves a traditional IRA, will the surviving spouse be required to pay taxes upon withdrawal? Will the surviving spouse be required to start withdrawals at a specific age? If the spouse does not use the IRA and passes it on at her/his death, will the beneficiaries be exempt from taxes?

A:

IRAs funded with before-tax dollars will one day be taxed. They do not receive a step-up in basis upon death, and they do not receive favorable capital gains tax treatment.

When an IRA owner dies and had named his or her spouse as a beneficiary, the surviving spouse has the opportunity to roll the IRA into his or her own name. The rollover is non-taxable and the surviving spouse is not required to take any withdrawals until age 70 1/2. Any withdrawals made will be included as ordinary income on the surviving spouse’s income tax return.

Non-spouse beneficiaries are not allowed to roll the IRA into their names, but they can leave the IRA in the deceased’s name and stretch the withdrawals over their life expectancies. They receive no tax exemption and all withdrawals will be taxable as ordinary income.

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