Why You May Not Want to Roll Your Late Spouse's IRA into Yours

Key Takeaways 💡

✅ Spousal IRA beneficiaries have two primary options: roll into your own IRA or keep as an inherited IRA

✅ If you're under 59½ and need income, keeping it as an inherited IRA can save you thousands in penalties

✅ Early withdrawals from inherited IRAs avoid the 10% penalty—but rolling over removes this benefit permanently

✅ The decision is irreversible once you roll over, making careful planning essential

Introduction

Losing a spouse is one of life's most difficult experiences. In the midst of grief, you're forced to make critical financial decisions that can impact your financial security for decades to come.

If you've inherited your spouse's IRA, most financial institutions will automatically suggest rolling it into your own account. It seems like the simplest option—fewer accounts to manage, easier paperwork, one less decision to make.

But here's what they often don't tell you: rolling over your late spouse's IRA could be the most expensive financial mistake you make.

As a CFP® professional who's guided hundreds of families through this exact decision over 14 years, I've seen surviving spouses lose tens of thousands of dollars simply because they didn't understand their options. The good news? Once you understand the key differences, the right choice becomes much clearer.

Understanding Your Two Options When Inheriting a Spousal IRA

When you inherit your spouse's IRA, you face a unique decision that only spousal beneficiaries have the privilege—and burden—of making. According to the [IRS](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary), you have two primary paths:

Option 1: Roll It Into Your Own IRA 🔄

This is the option most financial institutions push. You transfer the inherited funds into your existing IRA (or open a new one in your name), and it becomes yours—as if you'd been contributing to it all along.

Key characteristics:

- The IRA is retitled in your name

- You follow standard IRA rules based on your age

- Required Minimum Distributions (RMDs) begin when you turn 73 (or 75 if you reach 73 after 2032)

- Early withdrawal penalties apply if you're under 59½

Option 2: Keep It as an Inherited IRA (Beneficiary IRA) 💼

With this option, the account remains titled as an inherited IRA with you listed as the beneficiary. You maintain the account separately from your own retirement savings.

Key characteristics:

- The account stays in your deceased spouse's name with you as beneficiary

- No 10% early withdrawal penalty at any age, according to [Fidelity](https://www.fidelity.com/learning-center/personal-finance/retirement/inheriting-ira-from-spouse)

- More flexible distribution options

- Can be rolled into your own IRA later if circumstances change

The critical difference? Penalty-free access before age 59½.

The $10,000 Mistake: Why Age 59½ Matters

Let's talk about the decision that costs surviving spouses the most money: rolling over an inherited IRA when you're under age 59½ and need income.

Under normal IRA rules, if you withdraw money before age 59½, the IRS imposes a harsh 10% early withdrawal penalty on top of regular income taxes. But inherited IRAs follow different rules.

The Inherited IRA Advantage 📊

According to Charles Schwab, when you maintain an account as an inherited IRA, you can take withdrawals at any age without the 10% early withdrawal penalty. You'll still pay ordinary income tax on traditional IRA distributions, but that penalty disappears entirely.

Real-World Cost Comparison

Let's look at a concrete example that illustrates just how expensive this decision can be:

Scenario: You're 52 years old and need to withdraw $30,000 from your late spouse's $400,000 IRA to cover living expenses during a career transition.

Keeping it as an Inherited IRA:

- Withdrawal: $30,000

- Income tax (assuming 22% bracket): $6,600

- Early withdrawal penalty: $0

- Total tax bill: $6,600

- Net amount after taxes: $23,400

After Rolling Into Your Own IRA:

- Withdrawal: $30,000

- Income tax (22% bracket): $6,600

- Early withdrawal penalty (10%): $3,000

- Total tax bill: $9,600

- Net amount after taxes: $20,400

The difference? You lose an extra $3,000 to penalties—money that goes directly to the IRS instead of supporting your family.

Now imagine you need to take $50,000 per year for five years while you're between ages 50 and 55. That's a total of $250,000 in withdrawals, which means $25,000 in unnecessary penalties if you've already rolled the account over.

When Keeping an Inherited IRA Makes the Most Sense

Based on extensive experience working with mid-career professionals and surviving spouses, here are the scenarios where maintaining an inherited IRA is typically the better financial strategy:

1. You're Under 59½ and Need Current or Near-Term Income 💰

This is the most common situation where keeping the inherited IRA is crucial. Whether you need:

- Living expenses while transitioning careers

- College tuition payments for your children

- Emergency funds for unexpected expenses

- Income to maintain your lifestyle

Penalty-free access can save you thousands—or even tens of thousands—of dollars.

2. You're Significantly Younger Than Your Late Spouse 👥

If there was a notable age gap in your marriage, the inherited IRA may offer more flexible distribution strategies based on your life expectancy, according to research from Greenbush Financial Group.

3. You Want Maximum Flexibility During an Uncertain Period 🎯

The months and years following a spouse's death are filled with uncertainty. Your income needs, career trajectory, and living situation may all be in flux. An inherited IRA gives you:

- Penalty-free access if you need it

- The option to roll over later when your situation stabilizes

- Time to make the best long-term decision without pressure

4. You're Between Ages 50-59½ With High-School or College-Age Children 🎓

For the mid-career professionals I work with—especially those with expanding incomes but competing priorities—this period often comes with substantial education expenses. Having penalty-free access to inherited IRA funds can be a financial lifeline during college payment years.

The "Switch Strategy": Having Your Cake and Eating It Too

Here's a little-known strategy that sophisticated financial advisors use: the inherited IRA switch strategy.

You can keep your spouse's IRA as an inherited account while you're under 59½, taking penalty-free distributions as needed. Then, once you reach 59½ (when the penalty no longer applies anyway), you can roll the remaining balance into your own IRA.

This approach gives you:

- ✅ Penalty-free access during your 50s

- ✅ Simplified account management after 59½

- ✅ Flexibility to adapt to changing circumstances

- ✅ Maximum control over your financial future

Example of the Switch Strategy in Action:

Sarah, age 50, inherits her late husband's $600,000 IRA. She keeps it as an inherited IRA and withdraws $40,000 per year for six years to supplement her income and cover her daughter's college expenses (ages 50-56). That's $240,000 in withdrawals with zero penalty—saving her $24,000 compared to if she'd rolled it over.

At age 56, with college expenses behind her and her career stable, she rolls the remaining $360,000 into her own IRA. She doesn't need to take any more distributions until her RMDs begin at age 73, allowing the money to continue growing tax-deferred.

This strategy saved Sarah $24,000 and gave her exactly the flexibility she needed during a challenging life transition.

When Rolling Over DOES Make Sense

To be fair, rolling over your late spouse's IRA into your own isn't always the wrong choice. Here are situations where it typically makes more financial sense:

You're Already Over Age 59½

If you're past 59½, the early withdrawal penalty isn't a factor anymore. Rolling over simplifies your financial life by consolidating accounts.

You Don't Anticipate Needing the Money Before Age 73

If you have sufficient income from other sources and want the money to continue growing tax-deferred, rolling over can delay RMDs and maximize long-term growth.

You Want to Continue Contributing

You can't make new contributions to an inherited IRA. If you want to continue adding to your retirement savings in that account, you'll need to roll it over.

Simplification Is Your Top Priority

Managing fewer accounts can reduce complexity, especially if you're confident you won't need early access to the funds.

The Critical Detail No One Tells You: This Decision Is Permanent ⚠️

Here's what makes this decision so high-stakes: once you roll an inherited IRA into your own account, you cannot undo it.

According to IRS Publication 590-B, the IRS considers the rollover a completed transaction. If you later realize you need penalty-free access before 59½, you're out of luck. You'll pay that 10% penalty on every dollar you withdraw.

I've seen this scenario play out too many times:

- A 55-year-old widow rolls over her husband's IRA for simplicity

- Two years later, she needs $50,000 for an unexpected expense

- She's shocked to discover she owes a $5,000 penalty that she could have avoided

- There's absolutely nothing that can be done to reverse the decision

This is why getting it right the first time is so important.

Required Minimum Distributions (RMDs): What You Need to Know 📅

One consideration that often comes up: what about Required Minimum Distributions?

The rules differ depending on which option you choose:

Inherited IRA RMD Rules

As a spousal beneficiary with an inherited IRA, you can:

- Begin taking distributions based on your single life expectancy

- Delay RMDs until your late spouse would have reached age 73

- Maintain flexibility in distribution timing

Own IRA RMD Rules

If you roll the IRA into your own account:

- RMDs don't begin until you reach age 73 (or 75 for those turning 73 after 2032)

- Distributions are based on your life expectancy

- Standard IRA rules apply

For most surviving spouses under 59½, the RMD differences are less important than the penalty-free access issue. However, if you're close to or past RMD age, the distribution timing can become a more significant factor in your decision.

Estate Planning and Beneficiary Considerations 🏛️

Another nuanced factor: how this decision impacts your own estate planning.

When you maintain an inherited IRA, certain beneficiary protections remain in place. If you roll it into your own IRA, your beneficiaries will be subject to the SECURE Act's 10-year distribution rule (for most non-spouse beneficiaries), according to The Entrust Group.

For most families, this difference isn't significant enough to override the penalty considerations. However, if you have complex estate planning goals or significant assets, it's worth discussing with a qualified estate planning attorney.

A Process-Driven Approach to Making Your Decision

Figuring out the right choice requires looking at your complete financial picture. Here's the process I walk clients through:

Step 1: Assess Your Current Age and Situation

- Are you under or over 59½?

- What's your current income and employment status?

- Do you have children with upcoming education expenses?

Step 2: Project Your Income Needs for the Next 5-10 Years 📈

- Will you need to access these funds before 59½?

- What's the likelihood of unexpected expenses?

- Are there major life transitions on the horizon?

Step 3: Calculate the Potential Penalty Cost

- Estimate how much you might withdraw before age 59½

- Calculate 10% of that amount

- Ask yourself: "Is the convenience of rolling over worth potentially paying this penalty?"

Step 4: Consider the Switch Strategy

- Could you keep it as inherited now and roll over later?

- Does this give you the best of both worlds?

Step 5: Factor in Your Other Assets and Income Sources

- Do you have other emergency funds?

- What are your other income sources?

- How does this IRA fit into your overall financial plan?

This process takes time, but getting it right can save you thousands—or tens of thousands—of dollars over the coming years.

Important Compliance and Tax Considerations ⚖️

Before making any decision about an inherited IRA, please keep these important points in mind:

Tax Treatment: All distributions from traditional inherited IRAs are subject to ordinary income tax, regardless of whether you maintain it as inherited or roll it over. The 10% penalty is the key differentiator, not the income tax treatment.

State Taxes: Some states have additional rules regarding inherited IRAs and penalties. Consult with a tax professional familiar with your state's specific regulations.

Roth IRAs: If you inherited a Roth IRA, different rules may apply. Roth distributions are generally tax-free if certain conditions are met, but the penalty considerations for early withdrawals remain relevant.

Professional Guidance: The information in this article is educational in nature. Your specific situation may have unique factors that require personalized analysis from a qualified financial advisor and tax professional.

The Bottom Line: Don't Let Institutions Make This Decision For You

Financial institutions have their own interests when recommending you roll over an inherited IRA. Fewer accounts mean:

- Less administrative work for them

- Simplified reporting

- Easier account management on their end

But what's convenient for them might cost you thousands of dollars.

The reality is that most surviving spouses under age 59½ who might need income in the coming years are better off keeping the inherited IRA—at least until they reach 59½ or are certain they won't need penalty-free access.

Remember these key points:

💡 If you're under 59½ and might need income, the inherited IRA avoids the 10% penalty

💡 A $30,000 withdrawal could cost you an extra $3,000 in penalties if you've already rolled over

💡 Once you roll over, the decision is permanent—you can't go back

💡 The "switch strategy" gives you flexibility: keep it inherited now, roll over later

💡 This decision requires careful analysis of your specific situation, not a one-size-fits-all approach

Next Steps: Get Personalized Guidance for Your Situation

Every surviving spouse's financial situation is unique. Your age, income needs, other assets, family circumstances, and long-term goals all factor into making the right decision about an inherited IRA.

If you're facing this decision and want expert guidance tailored to your specific situation, I invite you to schedule a complimentary consultation. Together, we'll:

✅ Analyze your complete financial picture

✅ Calculate the potential penalty costs in your specific situation

✅ Determine whether the inherited IRA or rollover strategy makes more sense

✅ Explore the switch strategy and optimal timing

✅ Create a comprehensive plan for your inherited assets

For help navigating inherited IRA decisions and creating a comprehensive financial plan for your future, schedule a call.

You've already been through enough. Let's make sure this financial decision is one you can feel confident about.

About the Author

Tim Witham is a CERTIFIED FINANCIAL PLANNER™ professional with Balanced Life Planning, specializing in helping mid-career professionals navigate complex financial transitions. With 14 years of experience guiding families through inherited IRA decisions, college planning, and retirement strategy, Tim focuses on providing clarity and confidence during life's most challenging financial moments.

Balanced Life Planning works primarily with mid-career professionals who have expanding incomes and competing priorities, particularly those with high-school or college-age children who have never worked with a financial advisor before.

Sources & References

1. [IRS - Retirement Topics: Beneficiary](https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary)

2. [IRS Publication 590-B (2024) - Distributions from Individual Retirement Arrangements](https://www.irs.gov/publications/p590b)

3. [Charles Schwab - Inherited IRA Rules & SECURE Act 2.0 Changes (October 2025)](https://www.schwab.com/learn/story/inherited-ira-rules-secure-act-20-changes)

4. [Fidelity - Inheriting an IRA from Your Spouse (April 2024)](https://www.fidelity.com/learning-center/personal-finance/retirement/inheriting-ira-from-spouse)

5. [Greenbush Financial Group - Spouse Inherited IRA Options (September 2024)](https://www.greenbushfinancial.com/all-blogs/spouse-inherited-ira-options)

6. [The Entrust Group - 2025 Inherited IRA Rules: What You Need to Know (September 2025)](https://www.theentrustgroup.com/blog/inherited-ira-rules)

Compliance Disclosures

DISCLOSURE: The information contained herein has been obtained from sources believed to be reliable but cannot be guaranteed accuracy. Balanced Life Planning is a registered investment adviser. Registration does not imply a certain level of skill or training. Information presented is for educational purposes only, are subject to change from time to time and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.

Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization's initial and ongoing certification requirements to use the certification marks.