A surviving spouse who is the sole beneficiary of the decedent spouse's IRA can simply leave the account as-is, or may roll over the decedent's IRA into an IRA established in the spouse's own name (or, alternatively, elect to treat the decedent's IRA as the surviving spouse's own IRA). However, making the right choice can have profound consequences for a spouse under age 59-1/2.

The portion of a pre-age-59-1/2 distribution from an IRA generally is subject to a 10% penalty tax unless one of several exceptions applies. One of these exceptions provides that the penalty tax doesn't apply to distributions made to the beneficiary on or after the account owner's death. However, if the beneficiary spouse chooses to roll the inherited IRA into his or her own account, any subsequent distributions are no longer treated as made to a beneficiary. Thus, distributions would be subject to the 10% early distribution penalty if the surviving spouse is under age 59-1/2 at the time of the distribution.