3713.04 / What should surviving spouses who inherit IRAs know when deciding how to treat the inherited account?

The original SECURE Act sharply limited the distribution options for most IRA beneficiaries who inherit accounts in 2020 or thereafter. Surviving spouses are one of the few enumerated groups of individuals who continue to be eligible for taking inherited IRA distributions over their life expectancy post SECURE Act. However, as before the SECURE Act, surviving spouse beneficiaries have multiple options when it comes to determining how to treat an IRA that was inherited from a spouse. The choice the surviving spouse makes will impact the rate of distributions that must be taken from the inherited IRA—which, of course, can have a substantial impact on the survivor’s tax liability over the years. Because surviving spouses have a limited amount of time to make their election, it’s important to ensure that clients understand their choices—and the consequences of those choices.

Surviving spouses can, of course, continue to treat the IRA as a beneficiary (inherited) IRA like any other designated beneficiary. They also have the option of rolling the inherited account balance into their own IRA or an employer-sponsored retirement account. As a third option, surviving spouses can elect to treat the inherited IRA as their own.

Under proposed regulations related to the SECURE Act, however, the IRS has clarified that the surviving spouse has only a limited amount of time to elect to treat the IRA as their own.

Under those proposed regulations, the surviving spouse must make the election before the later of (1) the end of the year in which the surviving spouse reaches their required beginning date or (2) the end of the year following the year of the original account owner’s death.