Mistake 4: Immediately rolling over the money from the decedent’s IRA over to the spouse’s IRA.

This is not usually a good idea until the entire finances of the deceased and the beneficiaries are reviewed in detail. I always recommend contacting the client’s CPA and estate attorney in order to determine whether or not there are going to be any estate tax issues. For example, it is possible that the surviving spouse would actually want to disclaim some or all of the IRA in order to reduce any unnecessary estate taxes.

In addition to this, if you roll over your spouse’s money into your name and you are under age 59 ½, you may have to pay a penalty if you need to take a distribution before you turn 59 ½. This is called the “Spousal Rollover Trap.”

One of the options you could take in these circumstances is to utilize section 72(t) of the Internal Revenue code and take out the money before age 59 ½ without paying a penalty by using “substantially equal payments.” However, if you are many years away from this date and if you leave money in the decedent’s IRA, then you can take out money from the decedent’s IRA without any restrictions at all!

As you can see, a surviving spouse must be careful to investigate all options before rolling over the decedent’s IRA into their own name.

 

Adapted from MD Producer Materials