Inheriting Your Spouse’s IRA, by Bill Harris, RMA®, CFP®

 

As a couple, one of the greatest gifts you can give one another is the gift of preparedness. But one of you will live a few – or many – years without the other. That’s where estate planning comes in. And estate planning is much more than just having wills and other instruments in place. It’s also about how those accumulated resources will support the surviving spouse for as long as needed.

This book is a planning guide for navigating the estate tax and legal maze associated with the IRA universe. It includes the new tax rules and limitations brought about by the recent SECURE Act.

 

Until this book, one area that receives very little attention is that of a surviving spouse’s inherited IRA. The IRA is one of the most common assets a couple will have in their portfolio. About $25 trillion is held in retirement assets in the U.S., so inheriting a deceased spouse’s IRA touches almost everyone.

Widows, who are the sole beneficiary of their husband’s IRAs, enjoy special tax treatment if they are set up correctly. As the widow, she would have options of how to receive the IRA, including:

  • establishing an ‘inherited IRA’
  • doing a spousal rollover, or
  • unintentionally, just failing to choose an option

Would you know the difference between those options and the benefits of each? The scary part is that many decisions are irrevocable. Mistakes can wipe out significant portions of inheritances. Take the tax court case of Charlotte Gee, her mistakes cost her a penalty of nearly $100,000. This book will make sure you never makes those mistakes.

Widows face other traps and hurdles that can cause financial injury on their inheritances:

  • the widows tax
  • the Social Security ‘tax torpedo’
  • the surtax on net investment income
  • IRMAA, Medicare Part B (medical insurance) and Medicare Part D (prescription drug coverage) surcharges

Tax traps that weren’t triggered when married but are kicking in now that tax thresholds are at lower brackets.

The number of tax disadvantages and advantages of widowhood may appear overwhelming. 

Fortunately, this guide is a roadmap, it cites tax court cases, IRS regulations. It is in written everyday language and with ample real-life examples.