Tax rules can be confusing, and that can especially be the case when we are talking about the application of two separate rules. It’s easy to get confused when two or more tax laws intersect. For many, that occurs when we discuss the separate account rules for IRA beneficiaries along with the special rollover rules afforded to spousal beneficiaries.
If an IRA account has multiple beneficiaries, and that account is not split by December 31st of the year after death, then all beneficiaries are stuck using the life expectancy of the oldest amongst them. That treatment lasts until the account is emptied. For non-spouse beneficiaries, all post-death beneficiary Required Minimum Distributions (“RMDs”) must also begin by December 31st of the year after death. On the other hand, spousal beneficiaries can roll over inherited amounts to their own IRA accounts, essentially changing when RMDs begin. Spouses also get favorable treatment when calculating those RMDs. To illustrate, let’s take a fairly common example.