Inherited IRA in 2002

Submitted by Tony Yang on Mon, 2009-09-28 21:27

Hello, Hope all is well.

A client never roll the inherited IRA she received from her husband when he passed away in 2002. Now 7yrs have passed, was wondering if any penalties apply..

Thank you for your help.



Submitted by Alan Spross on Mon, 2009-09-28 21:46

There might be penalties if an RMD was required but not taken. This depends on the year of birth for both husband and surviving spouse. Was spouse sole beneficiary and what were their years of birth?

If RMD was required, but not taken, the sole surviving spouse is then deemed to have assumed ownership. If so, then RMDs will change. Did spouse contribute or distribute anything from this IRA after husband’s death?



Submitted by mk foss on Tue, 2009-09-29 01:04

There is no time limit for a surviving spouse to roll over an IRA inherited from the IRA owner. However, before she does that you will want to be aware of the exact penalty situation and whether the rollover would cause a 10% penalty on withdrawals for a young surviving spouse.



Submitted by Tony Yang on Tue, 2009-09-29 21:38

Thanks for the comments.

I found out the husband’s birth year is 1940 and according to my client she did not make any contribution or distribution since 2002 into/from his IRA.



Submitted by Alan Spross on Tue, 2009-09-29 22:13

OK. IRA owner passed at age 62 in 2002 prior to his RBD. Sole spouse beneficiary is not required to take RMDs until the year IRA owner would have reached 70.5. Since no inherited IRA RMDs have been required to date, this IRA remains as an inherited IRA and is not yet owned by the surviving spouse.

RMDs would appear to become necessary in 2010 unless the spousal rollover is completed prior to year end 2010. If spouse assumes ownership, then RMDs will be based on the surviving spouse’s age, with no RMDs due until she turns 70.5, and the stretch can be preserved.
If surviving spouse is not yet 59.5 and needs distributions, the IRA should remain titled in inherited IRA form. Distributions can then come out without any early withdrawal penalty. But if spouse is 59.5 by next year, the IRA should be rolled over into her own IRA and there will be no penalty on distributions. Surviving spouse will have to begin RMDs at 70.5. once ownership has been assumed.



Submitted by Anne Schulze on Wed, 2009-09-30 17:55

Would the beneficiary options be the same if instead of the spouse as the sole beneficiary the beneficiary was a marital trust fbo spouse? Would the beneficiary still have the option to wait until the decedent would have turned 70 1/2 to begin taking RMDs?



Submitted by Alan Spross on Wed, 2009-09-30 22:17

Yes, but only if the trust were qualified for look through treatment.



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