A Creative Way to Avoid RMDs From an Inherited Account

Do you know your options should you inherit an IRA from a spouse? There are often multiple choices regarding what you can do with the money. Furthermore, your options may be impacted by your spouse’s age when they passed, especially if they are under the age of 70½. Your age may also play a factor into your decision. One common option is to roll the IRA money into your own IRA and begin taking required minimum distributions (RMDs) either immediately if you are over age 70½ or when you turn 70½ if you are under that age at the time of the rollover. Another option is to create an inherited IRA, on which the RMDs don’t kick in until the deceased spouse would have reached 70½. The first option might be most effective if you are close in age and are either just at or very near to 70 1/2 because there really won’t be much of an opportunity for the money to grow before RMDs start. The second option works best if you find that you have time for the money to grow. Such a situation might be if your spouse passed in his/her late 50s or early 60s and you have a number of years for the IRA to increase in value. However, another option–and a creative one at that–is a combination of both the aforementioned possibilities. This option involves creating a inherited IRA and then rolling the money over to your account with a spousal rollover right before the date at which your spouse would have reached age 70½. This allows you to let the money in the inherited IRA to grow and not be hit with RMDs until you really need it. This option may be appealing a surviving spouse who is much older than the spouse who passed. This will allow the older spouse to use their own IRA money first and let the inherited IRA grow before rolling it over and taking RMDs on it. This last option might not be for everyone as it may not be worth it for everyone, especially couples who are close in age or where the spouse who passed was right on the cusp of RMD taking age. However, regardless which option you choose to pursue, you should talk with a certified financial planner or retirement specialist first to make sure that you are making the right decision and doing things correctly.