decedent ira
Hi all, please help. I have a decedent ira for a client from his sister (died 4 yrs ago) and want to know what happens when my client dies and his beneficary, who is his wife, recieves the money, what are the tax consequences to her? Is the money ordinary income or can she continue the stretch or is this considered transfer between spouses and not a taxable event at all? Big bet hanging on your answers.
Thanks to all,
Jeff
Permalink Submitted by Alan Spross on Thu, 2010-06-10 17:39
The client’s spouse will be named as his successor beneficiary, but there will not be a new stretch for his wife. Her RMDs must continue to be based on the client’s remaining life expectancy as if he was still living. In other words, the divisor he is using for RMDs will continue to be reduced by 1.0 for each successive year.
With respect to taxable income, assuming this is a traditional IRA and not a Roth IRA, all distributions will be fully taxable unless the original owner had basis in her IRA as documented on Form 8606. Any such basis will be applied pro rata and each distribution would therefore be partially tax free.