When one spouse dies and the surviving spouse is the beneficiary, the survivor has unique opportunities. She can roll over the spouse’s IRA to her own IRA. If the surviving spouse is younger, such a rollover can lead to extended tax deferral.
However, such a benefit is available only if the survivor is the sole IRA beneficiary. If the spouse is a co-beneficiary, certain deadlines must be observed to preserve the rollover opportunity. These deadlines apply to the year after the death of the first spouse:
* Before September 30. Pay off any charity listed on the IRA beneficiary form. Suppose that Marty Jones died and left $20,000 from his IRA to his favorite charity. The other IRA beneficiaries should tell the IRA custodian to pay $20,000 to the charity before September 30 of the year after Marty’s death. Then the charity will be excluded from future IRA withdrawals.
* Before December 31. The human beneficiaries should tell the IRA custodian to establish separate inherited IRAs. Suppose that Marty Jones, in addition to the $20,000 for charity, had said that his wife Nancy and his daughter Ava should divide his IRA evenly. In that case, Ava and Nancy could each set up an inherited IRA with half of the remaining IRA money from Marty.
Now, Nancy is the only beneficiary of her inherited IRA. As the surviving spouse, she can rollover her inherited IRA to an IRA in her own name.
