Multi Beneficiary rollover question
I have a client who is the 68 year old spouse of deceased IRA owner taking RMDs. She is one of 5 beneficiaries, the others being adult children of deceased. Can she roll her portion into her own IRA and not take distributions until age 70?
Permalink Submitted by Alan Spross on Tue, 2010-07-20 18:09
Yes, but the RMD for the year of death is calculated as if the owner had lived all year. That RMD can be satisfied by any of the beneficiary’s distributing the RMD amount. For years after the owner’s death, the surviving spouse does not have to take distributions until she reaches her required beginning date.
Another way to split the IRA is for the children to each create separate IRA accounts so that they can use their individual life expectancies for RMDs. Once the surviving spouse is the only beneficiary remaining, she can have the account re titled in her name. Some IRA custodians may require her to get a new account number for the IRA as a requirement for their processing platform.
All of these beneficiaries should designate their own successor beneficiaries ASAP.
Permalink Submitted by Pamela I. Herlong on Tue, 2010-07-20 18:35
Thank you so much Alan. That is what I thought but was being told differently by CPA and IRA company, Beacon.
Permalink Submitted by Anonymous (not verified) on Tue, 2010-07-20 23:31
I was reading the responses to this question and wanted some clarification.
I was always under the impression that a Spouse has to abilty to assume [u]only[/u] if he/she is listed a “sole” beneficiary. Is this at all a gray area? I realize once the accounts are separated out into Inherited IRAs, you can make the argument that this is now a “separate” account. Is this issue at all relevant and would some in the industry take the conservative route and challenge this?
Thanks.
pko
Permalink Submitted by Alan Spross on Wed, 2010-07-21 03:24
They might take issue, but then the rollover can be done in the more conventional way. The following section of the IRS Regs appears to indicate that the sole beneficiary status can be produced at any time:
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Q–5. May an individual’s surviving spouse elect to treat such spouse’s entire interest as a beneficiary in an individual’s IRA upon the death of the individual (or the remaining part of such interest if distribution to the spouse has commenced) as the spouse’s own account?
A–5. (a) The surviving spouse of an individual may elect, in the manner described in paragraph (b) of this A–5, to treat the spouse’s entire interest as a beneficiary in an individual’s IRA (or the remaining part of such interest if distribution thereof has commenced to the spouse) as the spouse’s own IRA. This election is permitted to be made at any time after the individual’s date of death. In order to make this election, the spouse must be the sole beneficiary of the IRA and have an unlimited right to withdraw amounts from the IRA. If a trust is named as beneficiary of the IRA, this requirement is not satisfied even if the spouse is the sole beneficiary of the trust. If the surviving spouse makes the election, the required minimum distribution for the calendar year of the election and each subsequent calendar year is determined under section 401(a)(9)(A) with the spouse as IRA owner and not section 401(a)(9)(B) with the surviving spouse as the deceased IRA owner’s beneficiary. However, if the election is made in the calendar year containing the IRA owner’s death, the spouse is not required to take a required minimum distribution as the IRA owner for that calendar year. Instead, the spouse is required to take a required minimum distribution for that year, determined with respect to the deceased IRA owner under the rules of A–4(a) of §1.401(a)(9)–5, to the extent such a distribution was not made to the IRA owner before death.
(b) The election described in paragraph (a) of this A–5 is made by the surviving spouse redesignating the account as an account in the name of the surviving spouse as IRA owner rather than as beneficiary. Alternatively, a surviving spouse eligible to make the election is deemed to have made the election if, at any time, either of the following occurs —
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A related and more difficult question could surface with a multi beneficiary situation at the owner’s death PRIOR to age 70.5 under which a sole beneficiary spouse could delay RMDs until the decedent would have reached 70.5. In this case the “anytime” reference above is not available to support the conclusion. Therefore, the question whether the spousal beneficiary can be considered “sole” beneficiary raises the above questions:
1) Does the spouse have to be the sole beneficiary at the time of death?
2) Can the spouse become the sole beneficiary on 9/30 in the year following death, which is the date the designated beneficiary is officially determined?
3) Or can the spouse become the sole beneficiary at some later date if separate accounts are created, and therefore stop RMDs until decedent would have reached 70.5? In that case the other beneficiaries would be stuck with the life expectancy of the parent, but what about the spouse?
I don’t find the Regs to be particularly clear on this question, and I do not recall any prior discussion of it.
Permalink Submitted by Anonymous (not verified) on Thu, 2010-07-22 04:12
Thanks alan.
This was from the Finals Regs, right?
I guess it is unclear with that reference:
“In order to make this election, the spouse must be the sole beneficiary of the IRA and have an unlimited right to withdraw amounts from the IRA.”
I am always cautious, but it seems you are more confident in seeing this as acceptable?
pko
Permalink Submitted by Alan Spross on Thu, 2010-07-22 19:36
Yes. The Reg section was 1.408-8 from which I copied Q&A 5.
I am quite confident that once the surviving spouse is the only remaining beneficiary on an IRA, they can assume ownership of that actual account, although many custodians may well require establishing a new account for the assumed ownership. Another rule says that if the spouse makes a contribution to the account or fails to take the RMD required from the account, ownership has been assumed by default.
When it comes to surviving spouses, the rules are very flexible, often allowing different paths to change status from spousal beneficiary to spousal owner. In general, the spouse can remain beneficiary if that suits their needs or can assume ownership once that is better. One of the moves that CANNOT occur is to return to beneficiary status once ownership is acquired, therefore a spousal beneficiary must be aware of actions of omission or commission that make them owners before the change is beneficial to them.