spouse inheriting ROTH IRA
Young spouse inherits ROTH IRA from deceased young spouse. What should I know about rolling over this account into an existing ROTH IRA of the surviving spouse? Is a surviving spouse required to take mandatory distributions from the account no later than age 70.5?
Permalink Submitted by Al Fry on Tue, 2008-12-16 20:58
No, she could become the new owner.
Permalink Submitted by Alan Spross on Tue, 2008-12-16 21:08
Some Roth agreements automatically provide for a spousal beneficiary to assume ownership of the Roth. Most agreements do not, but the IRS Regs state that the failure to take an RMD as a spousal beneficiary defaults to assumption of ownership. Therefore, doing nothing will result in ownership also. There will be NO RMDs if ownership is assumed or deemed to have occurred.
Generally, it is best to just assume ownership and have the account re titled as an owned Roth, or roll it into the surviving spouse’s Roth IRA. The 5 year holding period in that case will be based on the older of the decedent’s or the survivor’s holding periods.
However, if the survivor must cash in the inherited Roth due to urgent financial needs, ownership should not be assumed until both the tax and early withdrawal impacts are compared.
Copy of applicable IRS Regs. follows:
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Q–4. What is the effect of a surviving spouse of a Roth IRA owner treating an IRA as his or her own?
A–4. If the surviving spouse of a Roth IRA owner treats a Roth IRA as his or her own as of a date, the Roth IRA is treated from that date forward as though it were established for the benefit of the surviving spouse and not the original Roth IRA owner. Thus, for example, the surviving spouse is treated as the Roth IRA owner for purposes of applying the minimum distribution requirements under section 408(a)(6) and (b)(3). Similarly, the surviving spouse is treated as the Roth IRA owner rather than a beneficiary for purposes of determining the amount of any distribution from the Roth IRA that is includible in gross income and whether the distribution is subject to the 10-percent additional tax under section 72(t).
Q–7. Is the 5-taxable-year period described in A–1 of this section redetermined when a Roth IRA owner dies?
A–7. (a) No. The beginning of the 5-taxable-year period described in A–1 of this section is not redetermined when the Roth IRA owner dies. Thus, in determining the 5-taxable-year period, the period the Roth IRA is held in the name of a beneficiary, or in the name of a surviving spouse who treats the decedent’s Roth IRA as his or her own, includes the period it was held by the decedent.
(b) The 5-taxable-year period for a Roth IRA held by an individual as a beneficiary of a deceased Roth IRA owner is determined independently of the 5-taxable-year period for the beneficiary’s own Roth IRA. However, if a surviving spouse treats the Roth IRA as his or her own, the 5-taxable-year period with respect to any of the surviving spouse’s Roth IRAs (including the one that the surviving spouse treats as his or her own) ends at the earlier of the end of either the 5-taxable-year period for the decedent or the 5-taxable-year period applicable to the spouse’s own Roth IRAs.
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Permalink Submitted by Catherine Turner on Wed, 2008-12-17 00:02
thanks so very much, Alan,…….these are small accounts…..the surviving spouse’s objective is to simply and combine accounts……..So, what I am gathering is that the answer to my two questions is that it is perfectly fine for a young surviving spouse to rollover the deceased young spouse’s ROTH IRA into his existing ROTH IRA AND that he will not be forced to take distributions at age 70.5.
Permalink Submitted by Alan Spross on Wed, 2008-12-17 03:36
Right. There is never an RMD for owned Roth accounts and a spousal beneficiary can assume ownership of the inherited Roth.