Disclaimers and Roth conversions.
For Beneficiary IRAs would a full or partial disclaimers be OK and full or partial conversion to Roth IRA? Will this be the same for Owner IRA?
For Beneficiary IRAs would a full or partial disclaimers be OK and full or partial conversion to Roth IRA? Will this be the same for Owner IRA?
Permalink Submitted by mk foss on Wed, 2010-08-11 22:17
I’m not sure that I’m following your question.
If someone is named as the beneficiary of an IRA, they can disclaim the inheritence within 9 months of the death of the owner in full or partially. If they do not disclaim or if they only do a partial disclaimer, there interest would go into a beneficiary IRA and COULD NOT be converted to a Roth IRA.
If someone is named as the beneficiary of a Roth IRA, they can disclaim the inheritence within 9 months. Just as with the regular IRA, a partial disclaimer is permitted.
Permalink Submitted by Alan Spross on Wed, 2010-08-11 23:29
I agree.
But in the event your question contemplated a spousal beneficiary, the spouse (and only a spouse) could convert the portion not disclaimed. In addition, if the disclaiming beneficiary was a non spouse with the spouse as contingent or default contingent beneficiary, the spouse could convert the account or roll over their share to a Roth IRA whenever they wished.
Permalink Submitted by Steven Sloan on Fri, 2010-08-13 21:14
Thank you for responding. Let me clarify. The beneficiary has established an IRA as follows: IRA FBO John Doe beneficiary of Jane Doe deceased has 9 months to disclaim all or part of the IRA.
If they establish their own IRA (FBO John Doe) would they still have the ability to disclaim all or part of the IRA? Are you saying that nothing may be done to the initial IRA? And, it must be left in the name of deceased owner with all the assets frozen?
Permalink Submitted by Alan Spross on Sat, 2010-08-14 00:02
I mentioned the difference in options if the beneficiary was the surviving spouse. But for now will assume that John Doe was NOT a surviving spouse, but a non spouse beneficiary of Jane Doe, such as a son or brother.
John has 9 months from the DOD to execute a qualified full or partial disclaimer. During that time, if John has the RMD distributed to the extent Jane did not fulfill her RMD requirement prior to death, the disclaimer will not be impaired under IRS RR 2005-36. In addition, if John has the IRA titled in beneficiary form per your post, that action does not nullify a disclaimer, and that ability may be part of your question. In other words, John has the IRS re titled in beneficiary form FBO John, then executes a qualified partial disclaimer per Sec 2518, the IRA custodian should establish a second beneficiary IRA for the contingent beneficiary receiving the disclaimed portion. This would in effect create a separate account such that John could use his own life expectancy for RMDs for the portion he did not disclaim and the contingent beneficiary could use their life expectancy for the disclaimed share. For partial disclaimers, RR 2005-36 is very specific about how earnings from the DOD must be handled in order for the disclaimer to meet requirements.
The other question you pose relates to the extent John could change the investments in the IRA prior to execution of the disclaimer. I do not know whether changing the investments or transferring the account to a new custodian prior to disclaiming nulllifies the disclaimer. In other words, to what extent are the specific investments frozen during this period? The RR appears to eliminate the option of changing half the investments, disclaiming the other half and taking the position that the changes were limited to the share retained by the original beneficiary. A disclaimer applies to all assets in the account across the board, both the disclaimed investments and the retained investments.
Perhaps Bruce Steiner can address this question regarding investment changes.
Again, if John was a surviving spouse or disclaimed to a surviving spouse, the options above would include assumption of ownership by the surviving spouse.
Permalink Submitted by Bruce Steiner on Sun, 2010-08-15 13:19
See PLRs 8827072, 8904041, 200503024 and 200832018 regarding disclaiming the assets not changed.