Inherited Ira from spouse as MRD
I have a client that has an inherited Ira from his wife from 3 years ago. We did this because she was only 60 years old he was 75. He now wants to change it to his Ira before the end of 2010 and use it for his MRD due before the end of 2010. Can he do this or can he only use monies that were in his IRA accounts as of 12-31-2009. Thank you
Permalink Submitted by mk foss on Wed, 2010-12-08 21:50
Does he intend a rollover this year? With a rollover, the account is treated as his and he can take the RMD from it.
As an inherited account, no RMD would be due because the spouse would not yet have reached 70.5, he couldn’t satisfy his personal RMD with funds from an inherited IRA.
Permalink Submitted by Alan Spross on Thu, 2010-12-09 00:57
He could certainly reduce his total RMDs if he maintained the IRA in an inherited status. Since decedent spouse would now be 63, another 7 years would pass without an RMD requirement. But if he rolls over the IRA to his IRA this year, starting in 2011, his IRA balance will increase and the inherited funds will be drawn down using the divisor for age 75, instead of avoiding RMDs on the inherited IRA value for another 7 years.
Also, note that if he names a successor beneficiary on the inherited account, if he were to pass prior to the year RMDs must begin, his successor beneficiaries are treated as designated beneficiaries and can get a new stretch using their own life expectancies. This benefit ends when his RMDs would begin and the rollover to his own IRA should be done before that time to protect the stretch for his beneficiaries.
Permalink Submitted by [email protected] on Thu, 2010-12-09 15:54
My thought was to roll it over now and use all of it to pay his MRD for this year. This amount would not be included in his calculation for the MRD since it was not his IRA or subject to MRD rules in 2009. He would not have to worry about changing it into his IRA before passing on to allow the stretch and it would not be included in his MRD calculation ever.
Permalink Submitted by Alan Spross on Thu, 2010-12-09 17:14
Yes, he will not have to make a notation to remember to do the rollover in 7 years, but his total RMDs will be increased substantially unless the inherited account is very small in relation to his own IRA. Not really sure what you meant by “not included in his MRD calculation ever”. The balance used for his RMDs in 2011 through 2016 will be higher, particularly since his RMD % will reach 6.45% of his account balance by the time he reaches 84. This is not a problem if he needs the extra funds anyway, but if he does not he is losing tax deferral and increasing his income taxes for the next 7 years vrs leaving the inherited IRA in place for those 7 years.
And “using it to pay his RMD for this year” – do you mean he is replacing the funds in his own IRA which would partially or fully offset the loss of funds due to his own RMD? Yes, that is true but that replacement of funds is what leads to the increased RMDs from 2011 to 2016.