Your Spouse’s IRA and 401(k): Part 6a of Financial Considerations When You Lose Your Spouse

Updated: Feb 3, 2020

From 46birds

After you lose your spouse, the memories keep coming. You continually encounter little reminders, like the refreshed washer and dryer that he, dressed out in a too-tight Tyvek suit, spray-painted in the garage. One of the biggest reminders of how much he loved you is the 401(k) or IRA he built over his long career that will now wrap its arms around you and help keep you financially safe.

In our series on how to manage finances after the death of a spouse, we’re exploring tips from FINRA, a reliable financial source. Today, Tip 6a: Your Spouse’s IRA and 401(k) - Definitions.

Tax Considerations and A Long Definition of the Required Minimum Distribution (RMD)

The complications of the 401(k) and IRA lie in their special category as tax-deferred retirement accounts. All this extra stuff and all these extra rules result from the fact that taxes get special treatment, and of course no government wants to miss out forever on possible tax revenue!

Here’s the difference: when you save money in a regular bank or brokerage account, you’ve already paid taxes on the money that you put into those accounts, and each year when you make money through interest or stock sales, you pay taxes on those gains. However, in any Traditional 401(k) or IRA retirement account, you are putting in money that you haven’t paid tax on yet and any money you make in those accounts has also not been taxed.

So, when you want to take that money out of the special Traditional 401(k) or IRA, you need to pay tax. And because the government doesn’t want you to be able to keep that money tax free forever for yourself (and your heirs), they ha