The IRA Decision That Affects Your Kids

If you are one of the almost 50% of Americans who are married and you have an IRA, you likely named your spouse as your primary beneficiary. That is practical because it allows your surviving spouse access to the funds while they are alive.

What many families do not realize is that the choice a beneficiary makes for an IRA they inherit from their spouse can affect how long their children have to take distributions (make withdrawals) from the account. This, in turn, affects how long the assets can continue benefiting from tax-deferred growth.

Important planning reminder: If the goal is for your children to inherit the IRA from your spouse, then your spouse must name your children as the beneficiary of her IRA. This must be done whether the spouse moves the IRA they inherit from you to their own IRA or keeps it in a beneficiary IRA. Otherwise, the IRA custodian will apply the default beneficiary provisions in its agreement, which may not reflect your family’s wishes.

The Spousal IRA Options and Results

Assume that your plan is to name your spouse as the beneficiary of your IRA and that your spouse will leave that IRA to your children. Then, the tax-deferral outcome can depend on how your spouse decides to treat the inherited IRA and the timing of that decision.

A. Move the Inherited IRA to the Spouse’s Own IRA

When your spouse moves the inherited IRA to their own IRA, the account is then treated as if it always belonged to them.

As a result, the normal rules that apply to your spouse’s own IRA apply to the IRA they inherit from you. This means they would not have required minimum distributions until they are at least age 73 or 75, depending on their year of birth. It also means that if they take distributions before attaining age 59½, they may owe the 10% additional tax (early distribution penalty) on the amount unless they qualify for an exception.

When your spouse later dies, your children will have 10 years to distribute the IRA.

If your spouse dies before the age when required withdrawals from their IRA must begin, the 10-year rule applies to your children with no annual required minimum distributions during the 10-year period.

If your spouse dies on or after the age when required withdrawals from their IRA must begin, the 10-year rule still applies, but annual required minimum distributions would also apply to your children. These required minimum distributions are generally based on their single life expectancy.

Reminder: This “death after the age when required withdrawals must begin” rule applies only to traditional IRAs. It does not apply to your Roth IRAs, because there are no required minimum distributions during your lifetime from a Roth IRA.

Planning Reminder: Moving the inherited IRA to your spouse’s own IRA can be done at any time. There is no deadline for doing so. However, the timing of this election can affect the withdrawal rules that apply to your spouse.

B. Keep the Assets in a Beneficiary IRA

Your spouse may instead keep the assets in a beneficiary IRA rather than moving them to their own IRA.

In that case:

• Distributions are generally taken gradually based on your spouse’s age and corresponding single life expectancy if you died before the age when required withdrawals from your IRA would have begun. Here, your spouse’s mandatory withdrawals would generally begin in the year you would have reached the age when withdrawals from your IRA were required to begin had you lived.
• If you died on or after the age when required withdrawals from your IRA would have begun, distributions are based on the longer of your remaining single life expectancy or your spouse’s single life expectancy. Your spouse must begin these distributions in the year after your death.

When your spouse later dies, your children will continue taking distributions using your spouse’s remaining single life expectancy. The account must be fully distributed no later than the end of the 10th year after your spouse’s death. This is an important point of consideration, because the remaining single life expectancy could be less than 10 years and could be tax inefficient for large balances.

Example 1: Mark Dies Before His RMD Age

In this example:

• Mark dies at age 70.
• His wife, Lisa, keeps the account as a beneficiary IRA instead of moving it to her own IRA.
• Lisa must begin taking distributions no later than the year Mark would have reached the age when withdrawals from his IRA were required to begin. The withdrawals are calculated using her single life expectancy.

When Lisa dies, their children must distribute the remaining IRA within 10 years. During that period, they must also continue taking annual withdrawals based on Lisa’s remaining single life expectancy.

Example 2: Mark Dies After His RMD Age

In this example:

• Mark dies at age 78.
• Lisa keeps the account as a beneficiary IRA.
• Because Mark died after his RMD age, Lisa must begin taking distributions in the year after Mark’s death, using the longer of her single life expectancy or Mark’s remaining single life expectancy.

When Lisa dies, their children must continue annual withdrawals based on the life expectancy that Lisa used, and the account must be fully distributed within 10 years of her death. Depending on the remaining single life expectancy, the account could be depleted sooner than 10 years.

C. Disclaim the IRA

Your spouse may decide, for tax or estate-planning reasons, that they do not want to keep the IRA for themselves. Instead, your spouse may formally disclaim the IRA so that it passes directly from you to your children.

In that case, your children would have 10 years to distribute the inherited IRA.

If you died before the age when required withdrawals from your IRA would have begun, the 10-year rule would apply with no annual required minimum distributions during that period. If you died on or after the age when required withdrawals from your IRA would have begun, annual required minimum distributions would apply during the 10-year period.

Consult with your estate planning attorney regarding disclaimers: Your children will inherit the IRA if your spouse disclaims it, only if your beneficiary designation is structured to produce that result. Consult with your estate-planning attorney to ensure that any disclaimer satisfies federal requirements, applicable state law, and the IRA custodian’s requirements.

Why These IRA Decisions Matter

At first glance, the options may appear similar. In each case, your spouse inherits the assets, and your children may inherit any balance that remains after your spouse’s death or disclaiming.

However, the distribution rules that apply in each scenario can produce significantly different timelines and amounts for withdrawals. This includes mandatory amounts that must be withdrawn each year.

Choosing the option that is most suitable for your estate planning profile can affect both the amount ultimately received by beneficiaries and the period during which the IRA may continue benefiting from tax-deferred growth.

If your IRA balance is substantial, the financial and tax impact of that decision can be meaningful.

The Factors Your Spouse’s Advisor Must Consider

When determining which option is most appropriate for your spouse, their advisor should consider several factors, including:

• Your age at death
• Her age
• The age(s) of your child(ren)
• Whether she will need income from the IRA to cover living expenses

These factors determine how much must be withdrawn during any year, depending on the choice your spouse makes. If these factors are not considered as part of the decision-making process, the outcome may not align with your family’s planning objectives. Therefore, your spouse must make sure their advisor is provided with these details.

Preplanning Maximizes Planning Goals

For many families, retirement accounts represent one of their largest assets. Taking time to understand the choices available after the death of a spouse can help ensure that the account continues to support the family in the most effective way.

Because the decisions discussed in this article will ultimately be made by your surviving spouse, it is important to begin this planning while you are alive and ensure that the strategy is clearly communicated for your spouse to follow.

Please note: The rules discussed in this article are high level. Additional details and individual circumstances, including whether your children are eligible designated beneficiaries, may affect the options available to your spouse and beneficiaries.

Critical note: The strategy in this article assumes your spouse will leave the IRA to your children. But if there is any doubt that might not happen, you should talk with an estate-planning attorney about steps that can help ensure your children inherit the assets according to your wishes.

Denise Appleby will present Mistakes That Cost: How to Avoid the Most Expensive IRA and Plan Errors at Horizons Retirement Planning Experience, May 4-6, 2026, in Orlando, Florida.