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DH reworked our numbers in light of the latest estate tax stuff. The result was I booted DH as my beneficiary for my IRA in favor of the kids. He's worth a lot more than me and, should I die, would have stuck him in the 40% territory. Might as well give it too the kids - they'll end up with it anyway. So as it stands, DH gets nothing from me except my half of the house (my after-tax already went to the kids).

There's probably more to your story than the above statement, but from what understand, spouses can inherit the other spouse's IRA without a tax hit. Or, I may just not understand the whole thing....

IRA Inherited from your spouse

If you inherit a traditional IRA from your spouse, you generally have the following three choices. You can:
1. Treat it as your own IRA by designating yourself as the account owner.
2. Treat it as your own by rolling it over into your traditional IRA, or to the extent it is taxable, into a:
Qualified employer plan,
Qualified employee annuity plan (section 403(a) plan),
Tax-sheltered annuity plan (section 403(b) plan),
Deferred compensation plan of a state or local government (section 457 plan), or
3. Treat yourself as the beneficiary rather than treating the IRA as your own. [3]
There are a number of clear advantages to spousal rollovers of an IRA.
By using a spousal rollover, the surviving spouse can use his/her own age and life expectancy for starting Minimum Required Distributions from the IRA. Often this can mean a longer period for tax deferral of the IRA.
With a spousal rollover, the surviving spouse can use the IRS Unified Lifetime Table, based on joint life expectancies, rather than the Single Life table used for non-spousal beneficiaries of an IRA. The joint tables provide for a slower payout of required minimum distributions.
A spousal rollover allows a surviving spouse to name primary and contingent beneficiaries to the IRA. This allows the surviving spouse, if the situation warrants, to correct any problems in the original beneficiary designations. Naming beneficiaries for the spousal IRA can provide these beneficiaries with the option of using their own life expectancies for drawing down the IRA once they inherit it. If the spouse opts to inherit the IRA rather than executing a rollover, the distribution of the IRA must be distributed over the life expectancy of the original deceased owner for all beneficiaries who inherit the IRA.
A spouse, however, might decide to forgo a spousal rollover if he/she is under the age of 59 and 1/2 and has a clear need for the income from the IRA. As beneficiary, the surviving spouse is required to take minumum distributions from the account. Withdrawals would be exempt from the 10% early withdrawal penalty tax. [4]
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