Spousal Distribution
Hello everyone,
I have a person who came in to see me today with a distribution check for his Wife’s IRA. The check has not been cashed and he should be rolling this to a spousal inherited IRA….the check is payable to him….can he endorse it and deposit it as a spousal rollover or should he return the check and have it reissued as an spousal inheritance?
thanks
Kevin
Permalink Submitted by Anonymous (not verified) on Mon, 2010-06-14 22:49
First off, if the check was coded as a “distribution” it can not be rolled over to another inherited IRA, but certainly to a regular IRA (his) as a spousal assumption. If that is not satisfactory, I would go back to the custodian and redo the process. As beneficiary, he can get a simple non-taxreportable transfer to either an inherited IRA or assumed IRA at that institution. Then he can proceed with an asset transfer to move the money.
Not sure, if all my assumptions are accurate.
pko
Permalink Submitted by Alan Spross on Tue, 2010-06-15 00:28
This is a tough question. I take it that the spousal beneficiary has a distribution check from the inherited IRA and now wishes to roll it over to an inherited IRA from same decedent or back to the original inherited IRA.
While Sec 408(d)(3)(C)(ii) indicates that an IRA inherited from a spouse is NOT considered an inherited IRA with respect to the rollover rules, you may have a problem finding an IRA custodian who would accept the rollover contribution. Virtually all custodians assume that a rollover can only be done to the surviving spouse’s OWN IRA, and if funds are moved to another inherited IRA, it must be done by direct transfer only.
The IRS released PLR 2004 50057 in 2004 authorizing a qualified plan direct rollover for a spousal beneficiary to be made to an inherited IRA. But this may not be much help since the PLR only dealt with direct rollovers under 401(a)31 from a qualified plan. Nevertheless these direct rollovers are all treated as a two part distribution and rollover transaction rather than the non reportable IRA transfer.
If the distribution in hand is rollover eligible, the main problem as I see it is getting the receiving IRA custodian to accept the rollover and report it as such on their Form 5498. If they would do that, this person should be able to report the rollover as usual on line 15 of Form 1040. Be sure that the distribution in hand is NOT an RMD for the year of death of prior years that the deceased spouse did not take. Those amounts would NOT be rollover eligible. If the distribution is for a later year, it must first be applied to the person’s current year RMD. Remember the 2009 RMD waiver.
If the check is small enough and resistance is encountered, it is probably not worth the effort to pursue this past the IRA custodian. Person would then just accept the taxable distribution and make sure only transfers from the IRA are done by direct transfer only.