Should I Transfer My IRA to My Spouse in My Estate?

There are many different rules associated with passing on an IRA to a beneficiary.

In addition to filling out the company specific forms to determine the designated beneficiary to receive these account assets, it’s important to decide which person in your family for whom it makes the most sense to receive these particular benefits.

In the event that a person inherits an IRA from a deceased spouse, the survivor gets the most leeway in terms of the available choices. These choices include:

  • Treating the IRA as if it were their own retirement account and renaming it in their legal name.
  • Treating the new recipient as the beneficiary of the plan.
  • Rolling over the IRA into another account such as a qualified employer plan or another IRA and treating the IRA as if it were their own.

There are additional choices and decision points that might be raised by each course of action. The age of the account beneficiary at the time that the IRA is inherited could also have important tax implications.

A spouse is not the only person who is eligible to receive an IRA, but it might make the most sense as they have more choices available to them than other types of beneficiaries. Sit down with your experienced estate planning attorney in Virginia Beach to discuss the options available to you and whether or not a spouse makes the most sense as the beneficiary.



IRA Estate Planning Basics for Virginia Residents

Several different types of retirement accounts, including 403(b) accounts, individual retirement accounts and 401(k) accounts, are often a part of individuals’ estate plans. These must be dealt with accordingly as it relates to passing these on to other parties.

The passing on of an IRA often requires filling out a beneficiary form with the IRA company directly, since these pass outside of probate and will related documents. Tax deferred retirement plans like IRAs are unique because unlike most inherited property, withdrawals from retirement accounts are taxed as income for the recipient.

A designated beneficiary is the person who is named by the plan participant as the formal beneficiary of the plan. When planning ahead for distribution of an IRA, it is important for the party owning the IRA to think about the potential tax ramifications for the beneficiary. Under a rule known as the five-year rule, the entire account balance in the IRA must be distributed within five years of the participant’s death, regardless of who receives these assets in the distribution.

Distributions under this five-year rule can be very expensive due to the eliminated possibility of extending tax deferral. If you plan to pass on an IRA to a beneficiary of your estate and need further information about how to appropriately plan for this, schedule a consultation with an experienced estate planning lawyer in Virginia to discuss these options.