IRA death benefit options for a spouse beneficiary

• Required minimum distribution (RMD): The minimum amount that has to come out of a retirement account each year once distributions are required to begin.

• Required beginning date (RBD): The deadline by which an IRA owner has to start taking RMDs. It's April 1 of the year after the year the owner reaches their applicable age. Roth IRAs have no RBD, because a Roth IRA owner isn't subject to RMDs.

• Applicable age: The age at which RMDs have to begin, which depends on date of birth. For most people it's now 73. It rises to 75 for anyone who reaches age 74 after 2032. For older birth years it may be 70½ or 72.

• Sole spouse beneficiary: The surviving spouse of the account owner, named as the only primary beneficiary of the IRA.

• Single Life Table and Uniform Lifetime Table: The two IRS life expectancy tables used to calculate an annual distribution amount. Which one applies depends on the option you choose, as described below. The Uniform Lifetime Table generally produces a smaller annual amount than the Single Life Table.

If you're the sole primary beneficiary of your spouse's IRA, your options depend on two things:

1. The date your spouse died, specifically whether it was before January 1, 2020.

2. Whether your spouse died before their RBD.

This step is easy to miss, and there could be a penalty if an RMD is missed.

If your spouse was required to take an RMD for the year they died and hadn't taken the full amount, the remaining amount generally has to come out of the account, and you as beneficiary can take it.

This step doesn't apply to a Roth IRA, since a Roth IRA owner wasn't required to take distributions during their lifetime.

The following three options are generally available to a sole spouse beneficiary no matter when your spouse died or whether they'd reached their RBD. The specific options offered may depend on the terms of the IRA agreement.

• Take a lump sum. You generally may take the entire account balance at once.

• Treat the IRA as your own. As the sole spouse beneficiary, you may move the account into an IRA in your own name. There's no deadline for making this choice — you may do it at any point. Two consequences to understand first:

  • The account becomes your own IRA, so your own RMD rules and applicable age govern it going forward.

  • death exception to the 10% early withdrawal penalty no longer applies. If you're under age 59½ and later take money out, that 10% penalty tax may apply. Leaving the account as an inherited IRA preserves the exception.

• Roll the account over into your own IRA or an eligible employer plan. Several limits apply:

  • A Roth IRA can only move to another Roth IRA.

  • A traditional IRA may be rolled into a Roth IRA only as a conversion, which is a taxable event.

  • An employer plan can receive the rollover only if that plan accepts rollovers from IRAs (Roth IRAs can't roll to employer plans).

  • Any amount that is itself an RMD isn't eligible for rollover.

Your spouse died before their RBD, or the account is a Roth IRA

In addition to the options above, you may choose either of the following.

• The 10-year rule. The full balance is distributed by December 31 of the year containing the 10th anniversary of your spouse's death. Where death occurred before the RBD, no annual distributions are required in the intervening years.

• Life expectancy payments. Annual amounts based on your own age, recalculated each year. As a sole spouse beneficiary, you re-enter the Single Life Table at your new age every year rather than subtracting one from a fixed starting figure. Payments start by the later of December 31 of the year after the year of death, or December 31 of the year your spouse would have reached their applicable age.

Your spouse died on or after their RBD

The 10-year rule isn't available in this situation. Distributions are based on life expectancy, using whichever of the following two measures produces the longer payout period. Both start by December 31 of the year after the year of death.

• Your own life expectancy, recalculated each year using the Single Life Table, beginning with your life expectancy in the year after death.

• Your spouse's life expectancy, not recalculated. This starts with their life expectancy in the year of death and reduces by one each year after.

The three options in the "Options available in every case" section above apply here as well. The additional options differ as follows.

• If your spouse died before their RBD, or the account is a Roth IRA, you may use either the 5-year rule or life expectancy payments.

  • Under the 5-year rule, the full balance is distributed by December 31 of the year containing the 5th anniversary of death. Note that 2020 is disregarded for this purpose under the CARES Act, so a death occurring from 2015 through 2019 effectively has six years.

  • Life expectancy payments are based on your own age, recalculated each year using the Single Life Table, starting by the later of December 31 of the year after death or December 31 of the year your spouse would have reached their applicable age.

  • Which of the two applies if you make no choice is set by the terms of the IRA agreement.

• If your spouse died on or after their RBD, the calculation uses the same longer-of-two-measures approach described above for deaths on or after January 1, 2020.