If you inherit an IRA from your spouse, you can roll over that account to an IRA in your own name and designate your own beneficiaries. If you are younger than age 70 1/2, you won’t have to take any distributions until you reach that age. Inside the IRA, that money can continue to grow, tax-deferred.
Such a rollover might not work, though, if you inherit a traditional IRA and you need the money for living expenses before you reach age 59 1/2. After you roll over the inherited IRA to your own IRA, you probably would owe not only income tax but also a 10 percent early withdrawal penalty on any withdrawals.
In this situation, you should leave the inherited IRA in your spouse’s name. You can take distributions before age 59 1/2 without paying the 10 percent early withdrawal penalty; beneficiaries taking money from an IRA after the owner’s death qualify for an exception to the penalty. Once you reach age 59 1/2 and the penalty no longer applies, you can roll over the IRA to your own name and designate beneficiaries.
