• Spouses who inherit IRAs have important decisions to make.Old couple image by cegli from Fotolia.com
  
  Many families place a significant portion of their wealth in Individual Retirement Accounts (IRAs). If you inherit an IRA from your spouse, review IRA beneficiary rules carefully to avoid losing money to taxes. Internal Revenue Service (IRS) rules give spouse beneficiaries multiple options, which will allow you to realize your financial goals.
  
  

Lump-sum Distribution

• Any IRA beneficiary can withdraw the entire IRA within five years after the account owner's death. If you inherit a traditional IRA you will be responsible for paying income taxes on the money the year you make the withdrawal. If the lump sum is large enough, it may shift you into a higher income tax bracket.
  
  

Inherited IRA

• IRA beneficiaries may also take required minimum distributions (RMDs) no later than December 31 of the year following the account owner's death. This requires rolling the IRA into an inherited IRA in the name and Social Security number of the beneficiary and the name of the deceased.
  
  

Required Minimum Distributions

• The IRS determines RMDs by dividing an account's accumulated worth on December 31 by the beneficiary's life expectancy the year following the spouse's death, minus the number of years since RMDs began.
  
  For example, if a surviving spouse began taking RMDS at age 59 from an inherited IRA worth $50,000 on December 31, 2010, the IRS estimates life expectancy as 26.1 years. The RMD would be $50,000 divided by 26.1, or $1915.71. Assuming that in 2011 the account increased in value and remained worth $50,000, the RMD would be $50,000 divided by 25.1, or $1992.03.
  
  

IRA Rollover

• Both lump-sum distributions and inherited IRAs are available to all IRA beneficiaries. Spouses have a third choice: rolling the inherited IRA into a new account in your name or roll it into an existing retirement accounts. This is best option for preserving your savings if you do not need the money immediately. Once the investments are in your own account, ordinary IRA rules apply. You can continue making IRA contributions if you wish; you can also delay taking RMDs until you turn 70 1/2.
  
  

No Deadlines

• A spouse can take RMDs for years before deciding to roll the money into her own account. This is especially beneficial for spouses who inherit an IRA before the age of 59 1/2, when any IRA holder can make qualified withdrawals without penalty.