Although the IRS revamped and simplified IRA-distribution rules last year, a spouse beneficiary remains the only beneficiary who can roll an IRA into his or her own IRA. As a spouse beneficiary, you have the option of rolling over the IRA or leaving it in your spouse's name.
If it's unclear whether you'll need money from the IRA, Barry Picker, a CPA from Brooklyn, N.Y., suggests either leaving the IRA in your spouse's name until you reach age 59 1/2 or leaving enough in the account to meet your anticipated needs and rolling the rest into your own IRA.
Be careful that you don't inadvertently switch ownership of the IRA until you intend to do so. For instance, if you contribute to your deceased husband's IRA, the IRS will consider that action a change of ownership and will treat the account as yours from the date of the contribution. You can also trigger the switch by failing to take a distribution that you are required to take as a beneficiary of his IRA.
After the death of a spouse, take the time to review your financial and estate plans with a financial planner and estate lawyer who has experience with IRAs. Remember that there is no deadline for making a spousal rollover; as a surviving spouse, you can do it anytime.
Generally, the best way to handle a rollover is with a direct custodian-to-custodian transfer. You can also withdraw the funds and deposit them tax-free in the new IRA within 60 days as long as the custodian agrees not to withhold any of the money for income taxes. If you miss the 60-day deadline for depositing the funds, the IRS will treat the rollover as a distribution, and you'll owe income taxes on the entire amount.
After your spouse's death, you have nine months to decide whether to disclaim all or part of your IRA inheritance. If you don't need the assets in the IRA and want to keep the IRA out of your estate when you die, disclaim all or part of it to the next named beneficiary, says Robert Keebler, a planner and CPA in Green Bay, Wis. In order to do this, your spouse must have named backup beneficiaries for the IRA.