When your spouse dies, the IRA paperwork asks you to check a box — and the default answer can cost you a 10% penalty on every dollar you touch. Two Cedar Falls CFP® professionals walk through the decision.
When a spouse dies, the custodian sends a stack of paperwork. Somewhere in that stack is a form asking what you want to do with your spouse's traditional IRA, and there's usually a box sitting there looking like the obvious answer: roll it into my own IRA.
Most of the time that's the right box. But not always. And the times it's wrong, it's wrong by real money — as in a 10% penalty on every dollar you pull out before you turn 59½.
We walk through this decision with clients using a licensed flowchart called Should I Inherit My Deceased Spouse's Traditional IRA? It's five or six questions, and it lands you in one of three places. Nobody should have to make this call while they're still writing thank-you notes, so here's the whole thing laid out.
If you're earlier in the process than this, start with our companion piece on what to do if your spouse passes away — this article picks up at the IRA fork in the road.
Here's the deal. Everybody knows about two choices. There are actually three.
The account becomes yours. Your name, your beneficiaries, your rules. Required minimum distributions come off the Uniform Lifetime Table and don't start until your own required beginning date — currently April 1 of the year after you turn 73. Downside: it's your IRA now, so the 10% early distribution penalty applies if you're under 59½.
The account stays titled as your deceased spouse's IRA, for your benefit. RMDs come off the Single Life Table, which pulls more money out each year. But — and this is the big one — distributions from an inherited IRA are never subject to the 10% early distribution penalty, no matter how old you are.
This one's newer. The SECURE 2.0 Act added an election letting a sole surviving spouse beneficiary be treated as the deceased spouse for RMD purposes. You get the friendlier Uniform Lifetime Table and your RMDs are delayed until the year your late spouse would have had to start taking theirs. It applies to deaths after 2023.
And so the whole decision comes down to two things: your age, and whether you need the money.
Before anything else — did your spouse actually own this IRA from the start, or did they inherit it from someone else? A parent, usually.
If your spouse inherited it, you've got what's called a twice-inherited IRA, and this whole article doesn't apply to you. You can't roll it into your own IRA. You're a successor beneficiary, and you're generally stuck finishing out whatever distribution schedule your spouse was on, or a 10-year window. It gets messy in a hurry, and it's worth an hour with someone before you sign anything.
If your spouse was the original owner, keep reading.
This is the one that costs people money, so we'll be blunt about it.
Say you're 56, your spouse passed, and between the loss of their income and the funeral bills you need to pull $30,000 out of that IRA this year. If you rolled the account into your own IRA, that $30,000 is now an early distribution from your IRA. You owe income tax on it, plus a 10% penalty. That's $3,000 gone for no reason other than which box got checked.
Keep it as an inherited IRA and that penalty simply doesn't exist. You still owe income tax — no way around that, it was pre-tax money going in — but the penalty disappears. Simple numbers here, but $3,000 is $3,000.
The other part of that is you're not locked in. You can always roll an inherited IRA into your own IRA later. So the play for a lot of younger widows and widowers is: inherit it now, live off it as needed, and roll it into your own IRA once you're past 59½ and the penalty stops mattering. You get the flexibility for free.
Does that make sense? If you're under 59½ and there's any chance you'll need this money, inherit it. It's your decision, but that's our recommendation nine times out of ten.
Once the penalty is off the table, the decision flips to a different question entirely: which option gives me the smallest forced withdrawal?
Because RMDs aren't really about the money — they're about the tax bill. Every dollar the IRS forces out of that account is a dollar of ordinary income stacked on top of your Social Security, your pension, your IPERS. We have to pay our share, but we don't have to leave Uncle Sam a tip.
Roll it into your own IRA. The Uniform Lifetime Table is more generous than the Single Life Table — it assumes a joint life expectancy, so the divisor is bigger and the required withdrawal is smaller. Being older than your spouse means you don't gain anything by waiting on their schedule.
Now the SECURE 2.0 election earns its keep. Keep the account as an inherited IRA, elect to be treated as your deceased spouse, and your RMDs are delayed until the year your spouse would have turned 73 — calculated off the Uniform Lifetime Table when they finally start.
Picture a 64-year-old widow whose husband was 70 when he passed. Roll it into her own IRA and she starts RMDs at 73, nine years out. Make the election and she'd start in the year he would have turned 73 — three years out. That's the wrong direction. But flip it: she's 64 and he was 58. Now the election means she doesn't touch it until the year he would have turned 73, which is fifteen years of runway with no forced withdrawals and a wide open window for Roth conversions at her own pace.
That's the whole game: whoever's schedule buys you the longest stretch of low-income years, that's usually the one you want.
Here's a small thing that trips up a lot of families in a hard year.
If your spouse was already old enough to be taking RMDs, the RMD for the year they died still has to come out — and if they didn't take all of it before they passed, you have to take the remainder by December 31 of that year. It doesn't get waived because someone died.
Miss it and there's an excise tax on the shortfall. SECURE 2.0 knocked that down from the old 50% to 25%, and to 10% if you catch it and fix it within the correction window. Still, it's an entirely avoidable bill. Call the custodian, ask what your spouse had already taken for the year, and take the difference.
If your spouse died before their required beginning date, there's no year-of-death RMD to worry about. One less thing.
This decision doesn't live by itself. It sits inside a bigger tax problem that hits almost every surviving spouse, and we'd rather you see it coming.
The year after your spouse dies, you go from filing married filing jointly to filing single. Same house, largely the same income, and the standard deduction drops from $32,200 to $16,100 for 2026. The brackets compress too. It's completely normal to see your tax bill go up in the year after losing your spouse, at the exact moment your household income went down. We call it the widow's penalty, and it's not pleasant to think about, but if we don't talk about it, who's going to?
Which is why the IRA choice matters more than it looks. It's one of the levers you have.
And when the dust settles, the low-income years right after a spouse's death are often the best tax planning window you'll ever get. Worth reading our list of 7 ways to lower taxes in retirement before that window closes.
For the official rules, the IRS lays out beneficiary options on its Retirement topics — Beneficiary page, with the tables and the fine print in Publication 590-B. And if you haven't yet, check what you're entitled to as a Social Security survivor.
This is a decision you make once, under the worst circumstances of your life, on a form that gives you no context. That's a bad combination. And unlike a lot of financial choices, some of these doors close behind you — once an inherited IRA becomes your own IRA, it can't go back.
We keep a branded copy of the Should I Inherit My Deceased Spouse's Traditional IRA? flowchart on hand for clients — the full decision tree on one page, which is a lot easier to hold onto than an article.
👉 Reach out and we'll send you the spousal IRA checklist
👉 Grab a free introduction meeting with us
We're a flat-fee, fee-only firm right here in Cedar Falls. No commissions, nothing to sell you — so we've got no reason to steer you toward one box or the other. Any questions on any of this, just give us a holler.
A spousal rollover makes the account your own — your name, your beneficiaries, RMDs off the Uniform Lifetime Table starting at your own required beginning date, and the 10% early distribution penalty applies before 59½. An inherited IRA stays titled in your deceased spouse's name for your benefit, uses the Single Life Table, and is never subject to the 10% penalty at any age.
Yes. As a surviving spouse you can roll an inherited IRA into your own IRA at any later point. That flexibility only runs one direction though — once it's your own IRA, you can't put it back. That's why inheriting first is often the safer opening move if you're under 59½.
Not if you keep it as an inherited IRA. Distributions from an inherited IRA are exempt from the 10% early distribution penalty regardless of your age. You'll still owe ordinary income tax on the withdrawal. If you rolled it into your own IRA first and you're under 59½, the penalty does apply.
For deaths after 2023, a sole surviving spouse beneficiary can elect to be treated as the deceased spouse for required minimum distribution purposes. The account stays an inherited IRA, but RMDs are calculated using the Uniform Lifetime Table and don't begin until the year the deceased spouse would have reached RMD age. It's most valuable when you're younger than your late spouse.
If your spouse had already reached their required beginning date and hadn't taken the full RMD for that year, yes — the remaining amount must come out by December 31 of the year of death. Missing it triggers an excise tax of 25% on the shortfall, reduced to 10% if corrected within the IRS correction window.
Then it's a twice-inherited IRA and you're a successor beneficiary. You cannot roll it into your own IRA, and the distribution rules are different and considerably less forgiving. Get help before you sign the custodian's paperwork.
For most Iowa residents age 55 and older, retirement income including IRA distributions is exempt from Iowa state income tax. Federal income tax still applies. The state exemption is one of the reasons Iowa is a reasonable place to retire, but it doesn't change the federal math on this decision.