The lowdown on inherited IRAs

Los Angeles Times

25-05-2025

Dear Liz: I inherited my mother's Roth IRA when she died in 2015 and have been taking yearly required minimum distributions based on my age. My spouse is my primary beneficiary on this inherited Roth IRA. What happens if I pass away before she does? Can she just roll it over into her existing Roth IRA, as is generally permitted for spousal IRA inheritance? Or are there additional limits imposed because it becomes a 'doubly inherited' Roth IRA?
Answer: The SECURE Act largely eliminated the so-called stretch IRA that allowed non-spouse beneficiaries to take distributions over their lifetimes. IRAs inherited on or after Jan. 1, 2020, must typically be drained within 10 years.
That likely would be the case for your wife. Special rules allow a spouse to treat an inherited IRA as their own, but only when they inherit from the original IRA owner, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting.
There are a few exceptions. Your wife may be able to spread the distributions over her lifetime if she is disabled or chronically ill, for example.
If that's not the case, she's back to draining the account within 10 years. Many inherited IRAs require annual distributions. Since this is a Roth IRA, however, the original owner would not have been required to start distributions. Therefore, the spouse of the inherited Roth IRA beneficiary does not have a requirement to distribute annually over the 10-year period but may wait until the end of the 10-year period to do the full distribution, Luscombe says.
Dear Liz: I am in my late 50s, married and woefully unprepared financially for my later years. I was a stay-at-home mom for many years. I now work almost full time but my employer has no 401(k) or profit sharing or really any benefits at all. I just started putting $8,000 (the catch-up amount) into my Roth IRA. What else can I do now to make up for lost time?
Answer: You can't really make up for the decades of compounded returns you missed by not investing earlier. But you can make some smart decisions now for a more comfortable retirement.
Your most important decision likely will be how you and your spouse claim Social Security. Your spouse almost certainly should wait to claim until age 70 to maximize their lifetime benefit and to lock in the highest possible survivor benefit. If you outlive your spouse, this benefit could comprise the bulk of your income. Consider reading 'Get What's Yours,' a book about Social Security claiming strategies by Laurence J. Kotlikoff and Philip Moeller. Just make sure to get the updated version that was published in 2016, since earlier versions refer to strategies that Congress eliminated.
Delaying retirement is another powerful way to compensate for a late start, since you'll have more years to work and save. Consider finding an employer who will help you secure your future by providing a 401(k) with a generous match. You'll be able to contribute substantially more to a workplace retirement plan than you would to a Roth.
You and your spouse should consider hiring a fee-only financial planner to review your situation and offer customized advice.
Dear Liz: You recently responded to an elderly couple who planned to move into assisted living, but were concerned about capital gains taxes on the sale of their home. You suggested an installment sale or renting out the home as possible options. While not for everyone, another possibility is a home loan or a reverse mortgage to cash out tax free.
Answer: Reverse mortgages have to be repaid if the borrowers die, sell or permanently move out of their homes. If one of the spouses planned to stay in the home, a reverse mortgage might work, but not if both plan to move to assisted living.
A home equity loan or home equity line of credit might be options if the couple have good credit, sufficient income to make the payments and a cooperative lender. A tax pro or a fee-only financial planner could help them assess their options.
Liz Weston, Certified Financial Planner®, is a personal finance columnist. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the 'Contact' form at asklizweston.com.