Roth Inherited by Spouse. “treating it as your own"
There is some considerable confusion on the net on this. A spouse inherits a ROTH. What are the distribution OBLIGATIONS.
Specifically, I was trying to determine the possible RMD if an inherited spousal ROTH was kept in the deceased’s name (not retitled)
If you read the following (and I also called the IRS on this) the implication is, that if the surviving spouse does not take any distribution in the first year , the account is characterized as ‘treated as your own’ .
My conclusion at this point is , that the account can be left as is, no distribution taken , and none required.
This situation must occur many times a year, so hopefully someone has direct experience with this that they can share.
From Pub 590
You will be considered to have chosen to treat the IRA as your own if:
You do not take the required minimum distribution for a year as a beneficiary of the IRA.
ROTH
_____
If the sole beneficiary is the spouse, he or she can either delay distributions until the decedent would have reached age 70 1/2, ** or treat the Roth IRA as his or her own.**
PS, There’s another thread on basically the same thing here on EdSlott, and if I read it correctly, it confirms my thoughts.
http://www.irahelp.com/phpBB/viewtopic.php?area=&t=705&highlight=roth+rm…
Permalink Submitted by charles lore on Thu, 2008-12-11 00:37
Here is my take: In a TIRA surviving spouse who is beneficiary of the inherited ira would be required to take distribution at the point when owner huband would have reached his required beginning date ( RBD)
in a ROTH there is no RBD and thus there is no requirement to take distributions
Permalink Submitted by Alan Spross on Thu, 2008-12-11 01:00
As your links indicate, the net result of leaving the Roth in inherited form is essentially moot for the surviving spouse, since the Roth is deemed owned by the surviving spouse immediatly upon failure to take any RMD.
The RMD date that triggers ownership by default varies depending on both the ages of the decedent and the surviving spouse. But when that date arrives with no RMD having been taken, the Roth defaults to ownership of the surviving spouse.
But it is NOT moot with respect to successor beneficiaries. What if that surviving spouse actually DOES take RMDs over their life expectancy out of ignorance or any other reason? Then, there is no default to ownership, and there is a potential cost to the successor beneficiaries, usually the children. This is the result of the children becoming successor or remainder beneficiaries instead of designated beneficiares, as they would be if they inherited from the owner or prior to the surviving spouse having to begin RMDs. They would then be stuck with the remaining life expectancy of the surviving spouse instead of being able to use their own life expectancies.
Permalink Submitted by Joseph davis on Thu, 2008-12-11 02:25
Interesting point about beneficiaries after the surviving spouse passes, but fortunately moot in this case as no RMD will be taken.
I’m still wondering why I came to the wrong conclusion about this last year when I looked into it. I THINK it’s because I interpreted the phrase “treat as your own” as requiring some sort of title change to the account.
There are also some references on the net that mislead in that direction. Here’s an example from TRowPrice:
“RMDs are not required for owners of Roth IRAs including surviving spouses who roll over their Inherited Roth IRA assets into a Roth IRA of their own.”
That implies that you must actually DO SOMETHING (roll over) and put it in your own name, no?
So it looks like doing nothing with the ROTH account in this case is the way to go.
Permalink Submitted by Al Fry on Thu, 2008-12-11 16:33
Is there some reason to NOT retitle it in the spouse’s name? That removes all doubt and keeps one from “a trap for the unwarY”.
Permalink Submitted by Joseph davis on Thu, 2008-12-11 19:55
I wanted to change the title. The credit union has claimed they can’t keep an existing interest rate on CD’s if I change the title .
Actually, they are not and apparently wont change the ‘title’ at all, they move the funds into the spouses account.
Permalink Submitted by Alan Spross on Thu, 2008-12-11 20:04
This re titling issue, typically occurring with CD instruments does seem to present an exception that levies a cost to the change to ownership registration. Like Alfry, I would generally recommend ownership re titling of a spousal Roth because custodians and in some cases the IRS may not understand the default rules to ownership. However, in a case where a CD termination will result in a much lower current yield, I think a good case can be made to leave the Roth alone until the CD matures, and of course, to also avoid any distributions which might be construed to be RMDs and could in turn limit a successor beneficiary’s stretch.
Permalink Submitted by Joseph davis on Thu, 2008-12-11 20:26
Even more bizarre was the fact that they were willing to move a CD in a Traditional IRA into the spouses account , and keep the existing rate (even though they actually opened a new CD with a full NEW term), BUT, they claim they could not do it for a ROTH.
This seems almost too ridiculous on the face of it, but I can’t force them to do it.
Permalink Submitted by Alan Spross on Thu, 2008-12-11 20:58
Yes, banks are all over the map on what they will do with CDs when a depositor passes. Different treatments for all kinds of different situations, seemingly dreamed up on the spot as they go.
Probably the largest factor is whether current rates have changed in the bank’s favor or against them.
The IRS has no authority over the terms of the actual investment product, and only intervene if tax laws are broken.
Permalink Submitted by Joseph davis on Fri, 2008-12-12 21:09
The odd thing here is that the rate was against them in the case of the IRA , exactly as it was in the ROTH.
They seemed to think they could move the rate over for the IRA and not the ROTH. If anyone here can divine why that would be , I’d like to know.
In any case, they put the CD’s back in the original account at the old higher rate, so unless I’ve completely misread the distribution rules, we’re ok.
On the face of it, this is a very simple matter, but because of the legalese and multiple explanations you find on the net, it becomes a challenge.
The them ‘treat it as your own’ term is not really clear. It does not specify that you can just leave the old titling intact and keep it as an inherited account, or that you would have to change it over to you own name, in order to avoid distribution for the spouse. Maybe it’s just me