What Happens to a Roth IRA When Your Spouse Dies? A Complete Guide

So you’ve lost your spouse, and among all the grief and paperwork, there’s this Roth IRA account sitting there. What now? I know it’s overwhelming to deal with financial matters during such a difficult time, but understanding your options for an inherited Roth IRA can actually help secure your financial future.

You have special rights as a surviving spouse that other beneficiaries don’t have. Let us talk about what happens to your Roth IRA when your spouse dies and what choices you need to make.

The 3 Main Options for Spouses Who Inherit a Roth IRA

When your spouse passes away and leaves behind a Roth IRA, you have three primary options, each with different implications for taxes, required distributions, and long-term growth potential:

Option 1: Become the Account Owner (Spousal Transfer)

This is usually the easiest and best choice, but it’s only available to people whose spouses have died and who are the account’s only beneficiary.

How it works

• You can designate yourself as the new owner of your deceased spouse’s Roth IRA
• The account is treated as if it had been yours all along
• You can combine it with your existing Roth IRA if you have one
• No required minimum distributions (RMDs) during your lifetime

The big advantage: The Roth IRA continues to grow tax-free, and you don’t have to take any withdrawals during your lifetime, just like your spouse didn’t have to.

Important: To take money out of an account tax-free, you must have held it for five years and be at least 59½ years old when you do so.

Option 2: Roll It Over to an Inherited/Beneficiary IRA

This option makes sense if you’re under age 59½ and might need access to the money before reaching that age

How it works:

• You transfer the assets to a specially designated “inherited IRA” or “beneficiary IRA”
• The account registration includes the name of your deceased spouse, indication that it’s a beneficiary distribution account, and your name
• You’ll eventually need to take distributions, either based on your life expectancy or within 10 years

One big benefit is that you can get to the money without having to pay the early withdrawal penalty that usually comes with taking money out of an IRA before age 591·2%BD.

Important detail: As a spouse, you’re considered an “eligible designated beneficiary” under the SECURE Act, which means you can stretch distributions over your lifetime rather than being limited to the 10-year rule that applies to most non-spouse beneficiaries.

Option 3: Cash It Out (Lump-Sum Distribution)

This is the simplest option but potentially leaves the most money on the table long-term.

How it works:

• You withdraw all the funds at once
• If the Roth IRA meets the five-year rule, the entire distribution is tax-free
• If the account is less than five years old, you might owe taxes on the earnings portion

When this might make sense: If you need the money immediately for critical expenses or debt, or if the account balance is relatively small.

Downside: You lose the opportunity for continued tax-free growth within the Roth IRA.

Important Tax Considerations for Inherited Roth IRAs

One of the huge benefits of inheriting a Roth IRA (versus a traditional IRA) is the tax treatment. Here’s what you should know:

• Contributions: Always tax-free upon withdrawal (because they were made with after-tax dollars)
• Earnings: Tax-free as long as the account meets the five-year rule
• Early withdrawal penalties: Don’t apply to inherited IRAs (even if you’re under 59½), unless you choose Option 1 and treat it as your own
• Growth: Continues to be tax-free as long as the money remains in the account

When Should You Choose Each Option?

I’ve helped many clients navigate these decisions, and here’s my general guidance on which option works best in different situations:

Choose to Become the Account Owner if:

• You’re the sole beneficiary of the account
• You don’t need the money before age 59½
• You want to maximize tax-free growth
• You want to avoid RMDs during your lifetime

Choose an Inherited IRA if:

• You’re under 59½ and might need access to the funds
• You’re not the sole beneficiary
• You want to stretch distributions over your lifetime
• You want flexibility in how and when you take distributions

Choose the Lump-Sum Option if:

• You have an immediate need for the funds
• The account balance is relatively small
• You prefer simplicity over long-term growth potential

Special Rules to Be Aware Of

There are a few other important details that might affect your decision:

The Five-Year Rule

For Roth IRA withdrawals to be completely tax-free, the original account needs to have been open for at least 5 years. If your spouse’s Roth IRA hasn’t met this requirement, you might owe taxes on the earnings portion of any withdrawals.

Required Minimum Distributions (RMDs)

• If you treat the Roth IRA as your own, you don’t have to take RMDs during your lifetime
• If you roll it into an inherited IRA, you’ll need to take RMDs based on your life expectancy or within 10 years, depending on which option you choose

The SECURE Act Impact

The SECURE Act of 2019 changed many rules for inherited IRAs, but spouses received special treatment as “eligible designated beneficiaries.” This means you can still stretch distributions over your lifetime rather than being forced to empty the account within 10 years.

Steps to Take After Inheriting a Roth IRA

If you’ve just lost your spouse and inherited their Roth IRA, here’s what you should do:

1. Gather documentation – Death certificate, account statements, beneficiary designation forms
2. Contact the IRA custodian – They’ll guide you through their specific process
3. Decide which option is best for your situation – Consider consulting with a financial advisor
4. Complete the necessary paperwork – Different choices require different forms
5. Consider updating your own beneficiaries – Especially important if you become the account owner

Important Deadlines to Consider

Don’t miss these critical timing considerations:

• If your spouse hadn’t taken their RMD for the year they died (if applicable), you’ll need to take that distribution by December 31 of the year of death
• If you choose the inherited IRA option and want to stretch distributions over your lifetime, you must begin taking RMDs by December 31 of the year following your spouse’s death OR by December 31 of the year your spouse would have turned 73
• If you decide to disclaim the inheritance (choose not to accept it), you must do so within 9 months of your spouse’s death and before taking possession of any assets

When to Consider Disclaiming a Roth IRA Inheritance

In some situations, it might actually make sense to decline (disclaim) the Roth IRA inheritance:

• If including these assets would push your estate above the estate tax exemption limit
• If you want the assets to pass directly to the contingent beneficiaries (like your children)
• If you have substantial assets already and want to benefit the next generation

Remember that disclaiming is an irrevocable decision that must be made within 9 months of your spouse’s death.

Common Mistakes to Avoid

I’ve seen people make these errors that can cost thousands in unnecessary taxes or penalties:

• Taking a lump sum without considering long-term implications
• Missing RMD deadlines if you choose the inherited IRA option
• Not considering your age when deciding between treating as your own vs. inherited IRA
• Forgetting about the five-year rule for tax-free earnings distributions
• Not consulting with a tax professional before making decisions

Final Thoughts

Losing a spouse is incredibly difficult, and having to make financial decisions during this time only adds to the stress. But understanding your options for an inherited Roth IRA can help secure your financial future.

As a surviving spouse, you have the most flexibility when it comes to inherited Roth IRAs. The best choice depends on your age, financial needs, and long-term goals. When in doubt, consult with a financial advisor or tax professional who can help guide you through the process.

Remember, there’s no rush to make this decision immediately after your loss. Take the time you need to grieve and then make a thoughtful decision about how to handle this valuable asset your spouse left behind.