Retirement & Financial Planning Report

A surviving spouse who is an IRA beneficiary can transfer the account to an IRA for himself or herself. Then the surviving spouse can name beneficiaries of that IRA. After such a transfer, the surviving spouse will face the same rules as any IRA owner.

A 10% penalty generally will apply to distributions before age 59-1/2.

A 50% penalty will apply unless required minimum distributions are taken after age 70-1/2. (This rule has been suspended for 2009.)

These early-withdrawal penalty may hurt young surviving spouses. A survivor who needs cash will owe a 10% penalty on tax before 59-1/2.

To avoid this penalty, a young surviving spouse can leave the IRA in the decedent’s name. Then the surviving spouse can take distributions before 59-1/2 without owing a 10% penalty. Once he or she is past age 59-1/2 and the 10% penalty no longer applies, the survivor can transfer her deceased spouse’s IRA to his or her own name and name beneficiaries.