Q: I have a friend whose husband passed away last month. He was 13 years older than she is, and already collecting Social Security. He had an IRA but she is unable to collect from it without the large penalty before she's 59 and a half. Is there any way to roll the IRA over into something she would be able to collect from? Also, is there any way for her to obtain help from Social Security before she turns 60 years old? During her 35 years of marriage, she worked very little outside the home. --RT via email
A: You're mistaken in thinking that your friend can't take penalty-free IRA withdrawals. All her withdrawals will be taxable income. But she can avoid the 10% early withdrawal penalty.
As a surviving spouse, she has two choices:
The first is to roll the IRA into her own name, an option that's not available to other IRA beneficiaries. The advantage of doing that is that it prolongs the tax-deferred life of the account: As the IRA's new owner, she won't be required to take withdrawals until she's over 70 and a half. The disadvantage is that there will be a 10% penalty on withdrawals she takes before she is 59 and a half.
The second choice is to keep the IRA in her late husband's name and remain a beneficiary. If she does that, there is no early withdrawal penalty regardless of her age, says Barry C. Picker, a Brooklyn New York tax accountant.
If she keeps the account as an inherited IRA, she won't be required to start taking distributions until the year her late husband would have been 70 and a half, he adds -- but any withdrawals she does take will be penalty-free.
The earliest she can collect a Social Security widow's benefit is age 60. (Younger widows and widowers receive a survivor's benefit only if they are caring for a minor child.) But if she applies for a widow's benefit before reaching her own full retirement age, she'll receive a smaller amount.
Assuming she was born between 1945 and 1956, her full retirement age is 66. If she starts collecting a widow's benefit at 66, she'll receive 100% of the Social Security benefit her husband was entitled to when he died. If she starts collecting it at 60, she'll get 70.5% of that amount.
Please send your
questions to [email protected]. I'm sorry
I can't respond personally to every
email. Questions are only addressed online.
(c:) Lynn Brenner, All Rights Reserve
Comments