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Losing a spouse is one of the most difficult experiences anyone can go through. You’re grieving, but you’re trying to solve their problems, including your old IRA.
If they leave you that money, rolling it into your own IRA may seem like the easiest way to do it. This is definitely an option to consider, but it can backfire if you’re not careful.
After you transfer inherited IRA funds to your retirement account, you generally cannot access the funds without penalty until age 59 1/2. There are exceptions such as expensive medical expenses, but you cannot freely spend money.
If you want more flexibility in accessing your inheritance, you may want to choose a different strategy, such as the 10-year rule. This allows you to withdraw all funds from your inherited IRA from the year following your spouse’s death until the end of 10 years. There are no rules about how much you have to withdraw each year.
You can also select Required Minimum Distribution (RMD) rules. This allows you to spread your withdrawals over your lifetime, but requires annual withdrawals. If you don’t need the funds right now and want to grow your investments while maintaining access to your funds, this could be the right choice for you.
You can’t switch between the 10-year rule and the RMD rule, so you must choose one and stick to it. Think about what you plan to use the money for and how withdrawals will affect your taxes to decide which one is right for you.
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