Widows Who Inherit an IRA Face a Costly Default Choice

Full analysis

When a widow inherits her husband's IRA, she can either retitle it in her own name or leave it as an inherited account — and doing nothing defaults to the inherited option, which is typically the more expensive path. The difference comes down to which IRS table governs the required minimum distribution (RMD), the mandatory annual withdrawal the IRS requires from retirement accounts. Beneficiaries of inherited accounts use the Single Life Expectancy table, which pulls money out faster; account owners use the Uniform Lifetime table, which spreads withdrawals over a longer period and demands less each year. For a 76-year-old widow with $480,000, that gap amounts to roughly $13,800 in a single year — and over a decade, forces out about $128,000 more, costing approximately $30,600 more in federal income tax and leaving around $171,000 less inside the tax-sheltered account by age 85.

There is one real exception: a survivor younger than 59½ who expects to need the money soon should consider leaving the account as inherited, because withdrawals from an inherited IRA escape the 10% early-withdrawal penalty that would otherwise apply. For most retired couples this exception does not apply. John Urban, founder of RetireSmartIRA, recommends that married couples settle this question now, while hypothetical — specifically discussing which spouse might need funds quickly after the other dies, writing down the decision, and storing it with estate documents such as a will, trust, and beneficiary designations. The RMD starting age varies by birth year: 70½ for those born before July 1949, 72 for those born July 1949 through end of 1950, 73 for those born 1951–1959, and 75 for those born 1960 or later.