Financial Mistakes of Surviving Spouses

Widows and widowers can fall victim to numerous mistakes when sorting out their finances. Three of the most common financial mistakes made by surviving spouses and ways to avoid them are below:

IRAs: Many widows and widowers inherit IRAs from their deceased spouses which they can rollover into their own IRAs. However, if the surviving spouse has not reached age 59 1/2, the IRS will impose a 10% penalty for any distributions from the IRA. A surviving spouse can avoid the 10% penalty by transferring the inherited money into an “inherited IRA” and then transferring it into their personal IRA when they reach age 59 1/2. Additionally, if the deceased spouse had not reach 70 1/2, the surviving spouse is not required to make annual withdraws until the year the deceased spouse would have turned 70 1/2.

Unused Exemptions: Many widows and widowers do not realize that a federal estate-tax return must be filed in order for the deceased spouse’s unused estate-tax exemption to pass to the surviving spouse. The future of portability is uncertain, and filing an estate-tax return when it is not required can be a hassle; however, so a settling a trust may be a better option to pass unused exemption amounts to a surviving spouse.

Social Security: Surviving spouses can collect Social Security survivor benefits when they turn sixty, but they will receive smaller distributions every month than they would if they waited until they reached the full retirement age.

See Kelly Greene, Survivors’ Biggest Mistakes: Widows and Widowers Often Lose Money Needlessly; IRA Rollover Penalty, The Wall Street Journal, Nov. 12, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.