RMD SURVIVING SPOUSE
Decedent died 11/07 at age 63, with spouse age 54. He had taken retirement payments prior to his death. After death employer pension plan balance was rolled into IRA in the name of the decedent for benefit of the surviving spouse. IRA trustee notified spouse that she has to take an IRA distribution this year, and, since she didn’t take one within a year of death, that she would have to take distributions under the 5 year rule. My understanding, based on my limited experience and research indicates that she would not have to begin to take rmd’s until her husband would have turned 70 1/2. What am I missing and is there any scenario in which she would have to start taking RMD’s now?
Permalink Submitted by Alan Spross on Mon, 2010-10-25 20:05
The IRA custodian is confused, probably due to being unfamiliar with the rule that allows a sole beneficiary surviving spouse to delay beneficiary RMDs as you stated. This is on p 36 of Pub 590. In fact, this is most likely the reason that the spousal rollover is being delayed. Custodian probably sees very few spouses maintaining the IRA in beneficiary format.
Permalink Submitted by JEFF MACK on Mon, 2010-10-25 21:06
Alan, thank you for your reply. The custodian is Merrill Lynch; I would have thought that they would have seen this type of situation.
Permalink Submitted by Alan Spross on Mon, 2010-10-25 22:20
You would think so. This goes back to PLR 2004 50057, but the findings have not been incorporated into the code to date. Since they allowed a spousal inherited IRA to be established in the first place, the main hurdle had been overcome, so it is surprising that they now are balking in this manner.
Was the transfer done no later than 12/31/2008? If not, AND if the pension plan was one of the few that retained the 5 year rule instead of accepting the 2002 IRS RMD Regs, the inherited IRA is required to retain the RMD provisions of the pension plan, ie the 5 year rule. This is unlikely to be the case here, but it IS a possibility if those two conditions apply.
Permalink Submitted by JEFF MACK on Tue, 2010-10-26 00:09
Alan,
The Rollover was reported on a 2008 1099R, so it must have been done before December 31, 2008. I don’t have information regarding the employer plan provisions. I’m not certain what kind of plan it was. It was with the National Automobile Dealers Association Retirement Trust. Is Merrill Lynch balking because this has only been addressed by a PLR? Are you also saying that this can be changed to her own IRA rather than an inherited beneficiary IRA now or in the future? Could doing this resolve the custodian’s issues?
Permalink Submitted by Alan Spross on Tue, 2010-10-26 00:15
A spousal inherited IRA can be rolled over or changed to ownership status at anytime, and that would likely eliminate the ML issues. However, the purpose of the current arrangement is to allow the surviving spouse to take distributions as she needs them without penalty, and if she does not need them, there are no RMDs so the account can grow tax deferred. After she hits 59.5, she would then typically assume ownership since there would then retain both advantages, ie no RMD until she reached 70.5 if no penalty if she needed distributions sooner. Therefore, the account should probably remain as is.
Since the transfer was done in 2008, there is no reason why she must take RMDs at all, and I think if you elevated the discussion with ML to a higher level, they would concur. If they don’t, refer them to Q&A 3 in the following link to the IRS Regs. 1.401(a)9-3:
http://www.taxalmanac.org/index.php/Treasury_Regulations%2C_Subchapter_A…
Permalink Submitted by JEFF MACK on Tue, 2010-10-26 00:39
Alan,
Thank you very much for the helpful information and the citations