Key Takeaways
- If a surviving spouse is the only beneficiary of a late spouse’s IRA and misses a required withdrawal by Dec. 31 in any year after the death, the IRS automatically treats the IRA as the survivor’s own.
- Once the IRA is the survivor’s own, a withdrawal taken before age 59½ may owe the 10% additional tax, which is $4,000 on each $40,000.
- A 56-year-old widow who inherits her husband’s $600,000 IRA and skips a year’s required withdrawal because she doesn’t need the money yet could owe that tax on what she takes out later, before 59½.
- A spouse who takes each required withdrawal on time gets to decide for herself when to make the IRA her own.
Nobody wants to think about IRA rules after losing a spouse. But if you’re younger than 59½ and the only beneficiary on your late spouse’s IRA, there’s a Dec. 31 deadline you’ll want to know about. Miss it, and the money you take out before that birthday may come with a 10% tax.
One skipped year is all it takes
Let’s take a hypothetical: you’re 56, and your husband died this year at 75, already taking his required withdrawals. You’re the only beneficiary on his $600,000 traditional IRA.
Next year, you leave the account alone. Say you’re living on savings while you sort things out, so you don’t take the year’s required withdrawal by Dec. 31. You haven’t filed anything or told anyone you want the IRA to be yours.
Because you skipped it, the IRS now treats the IRA as yours anyway. The year after, at 58, you need $40,000 from it for your bills, and that withdrawal may come with an extra tax bill.
That’s a steep price for a year you didn’t even need the money.
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The IRS makes the choice if you don’t
A surviving spouse who’s the sole beneficiary of a late spouse’s IRA can choose to be treated as its owner instead of as a beneficiary, according to IRS Publication 590-B.
She doesn’t have to make that choice herself, though. In any year after the death, if she’s the sole designated beneficiary and doesn’t take a required withdrawal by Dec. 31, the IRS deems her the owner automatically. She doesn’t file a form or make an election. Missing the withdrawal is enough.
And owners live by owners’ rules. The IRS says in the same publication that once a spouse treats an inherited traditional IRA as her own, a withdrawal she takes before 59½ may owe the 10% additional tax.
$4,000 on every $40,000
On a $40,000 withdrawal, 10% is $4,000. The tax applies to each withdrawal before 59½. So if you need $40,000 at 58 and another $40,000 at 59, before your half-birthday, you could owe it twice: $8,000 in all.
Take the withdrawal, keep the choice
For a spouse who wants to stay a beneficiary, the way to do it is a date on the calendar: take each year’s required withdrawal by Dec. 31.
That leaves the timing of the switch up to you. The IRS figures an owner’s required withdrawals starting with the year she chooses to be the owner, or is deemed to be. So the election can wait for a later year, such as one after 59½.
And there’s a reason to make the switch eventually. As owner, you figure required withdrawals as if the IRA had been yours all along, and an owner’s withdrawals don’t start until her 70s. (The IRS puts the start at 73 for anyone reaching that age now.) For a widow in her 50s, that’s well over a decade with nothing required.
An adviser who handles the account may well have the deadline covered. Still, it’s worth asking whether next year’s required withdrawal is on the schedule, since the $4,000 would come out of your pocket.
Watch the first Dec. 31 after a death
Frankly, I’d rank this among the harshest bits of IRA fine print. The automatic switch starts the year after a death, when a grieving spouse is least likely to be watching the calendar.
For anyone widowed last year who owes a required withdrawal this year, the first deadline is this Dec. 31. For anyone widowed this year, it’s Dec. 31 next year. Once you’re past 59½, a missed withdrawal would still make the IRA yours, but the 10% additional tax applies only to withdrawals before that age.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
