Spouse and Children primary beneficiaries of IRA
John Doe is on his second marriage but has adult children from his first marriage.
John designates his primary IRA beneficiaries as follows:
$10,000 to current spouse.
Remainder of IRA holdings split equally to adult children.
John passes away.
In haste, $10,000 is transferred to a Beneficiary IRA for the spouse. The remaining funds are distributed equally to the adult children.
Since John’s spouse is not the sole primary beneficiary, can she transfer the $10,000 to her personal pre-existing IRA?
If so, since the funds have already been moved to a beneficiary IRA, what should the spouse do to ensure proper tax reporting?
Thanks!
Permalink Submitted by Alan Spross on Mon, 2011-10-17 17:11
A surviving spouse can transfer funds in an inherited IRA over to their own IRA, or assume ownership of the inherited IRA anytime they wish. Any 1099R she receives from the inherited IRA custodian can be reported as a rollover on Form 1040 on line 15.
Permalink Submitted by Nathan Webster on Mon, 2011-10-17 17:40
Thank you for your prompt response. My understanding then is that the spouse could transfer the assets in their Inherited IRA over to their personal IRA. Then the spouse would only be required to make RMDs based on their own age. If say, the spouse was under 59 1/2, she could delay taking any RMDs until she reaches 59 1/2.
If I’m mistaken please let me know. Otherwise, thanks again.
Permalink Submitted by Alan Spross on Mon, 2011-10-17 17:57
That is correct. The spouse would then treat the balance in all respects as their own IRA, including RMD requirements. If surviving spouse inherited any non deductible contribution amounts, then they should complete an 8606 for their own IRA to show the basis inherited. This would enable a pro rated part of spouse’s distributions to be tax free.
If the inherited IRA was left intact, RMDs might have to begin either sooner or later than if ownership is assumed. This depends on both the ages of the decedent and the surviving spouse. If the separate accounts are set up by 12/31 of the year following owner’s death, the spouse’s share should be eligible to be treated as a sole beneficiary.