The 99% Rule for Spousal IRA Beneficiaries
A spouse who inherits an IRA or similar account has a couple of options available depending on what the end goals are. But in most cases, the 99% rule offers flexibility and helps preserve the stretch.
Here’s the rule, in a nutshell:
The 99% Rule:
If a surviving spouse beneficiary is under 59 ½ at the time the IRA is inherited from the deceased spouse, then 99% of time the correct planning move is to establish an inherited IRA for the surviving spouse’s benefit. The funds should continue to be kept in an inherited IRA until the surviving spouse turns 59 ½. Once the surviving spouse turns 59 ½ —or if the person is already over 59 ½ when he or she inherits—a spousal rollover can be executed. Why is this strategy right so much of the time? For the simple reason that there is almost never a downside to using it. It almost always allows a surviving spouse flexibility without hindering them in any way.
Some might dispute that notion and point to the fact that, by remaining a beneficiary of an inherited IRA, it would lead to the surviving spouse having to take required minimum distributions (RMDs) prematurely (before turning 70½), but that logic is almost always flawed.
Here's why: