Spousal Beneficiary Rollover

A spousal beneficiary rollover is the transfer of retirement fund assets to the surviving spouse of the deceased. This situation occurs when the surviving spouse is the named beneficiary on the retirement account.

The transfer of spousal beneficiary rollover funds is generally done in one of two ways. The first way is for the retirement account to remain intact and simply be renamed to reflect the new owner. The second way is to transfer the funds to the spouse's account.

The spouse is not automatically designated as the recipient of unused retirement funds. However, with many retirement plans, the spouse must give their consent for another recipient to be named. In some cases, for example in a qualified plan account, the spouse must be named the beneficiary.

When a spouse dies, the surviving spouse who is named a beneficiary on the deceased spouse’s retirement account typically has the option of simply rolling over those funds to their own retirement account, as if that money was their own. If the deceased spouse had multiple retirement accounts, it may be possible for the surviving spouse to consolidate those into a single inherited account.

A surviving spouse may decline to inherit retirement funds, in which case the account funds will be passed on to the contingent beneficiaries named by the deceased spouse. These beneficiaries are often children or grandchildren, but could also be a charity or organization.

In lieu of a spousal rollover or declining to inherit the retirement funds, surviving spouses have the option of liquidating the value of their deceased spouse’s retirement account in the form of a lump-sum payment.

Receiving a deceased spouse’s retirement fund assets does not automatically constitute a taxable event. In the case of most transfers, the surviving spouse will not pay taxes. These cases include transfers in which the surviving spouse moves the funds into a new or existing individual retirement account, or IRA, or when the fund is simply updated with the surviving spouse’s name.

However, the surviving spouse does not have to open a new account or add the inherited funds to their own account. If a spouse instead opts to receive a lump-sum payment instead, the distribution of that money likely will be considered taxable income and incur taxes.

The specific tax considerations for the various options available will also depend on what type of retirement account the deceased spouse had. A Roth IRA, for example, is a fund for post-tax money, so the withdrawal rules on such an account may be different than those for a pre-tax traditional IRA fund.