Spousal Beneficiary IRA
I have been told conflicting advice, and I’m hoping that you can help me clarify.
If a spouse beneficiary rolls her deceased husbands IRA into an inherited IRA (Jane Doe IRA Beneficiary of John Doe), does she have the option of delaying any life expectancy/RMD distributons from that INHERITED IRA until she turns 70-1/2?
John Doe passed away 11/2010 at age 57. Jane Doe is age 53, and chose to roll assets into an inherited IRA rather than her own, so that she could access funds penalty tax free pre age 59-1/2. I was always told that RMDs must be taken from an inherited IRA (by 12/31/YY of the year following original IRA owner’s death), regardless of whether or not the beneficiary is a spouse, if they want to avoid the 5 year rule. Now, I’ve been told that a “spouse” beneficiary can roll the assets into an inherited IRA to avoid the premature dist. penalty tax, but DOES NOT have to take out RMDs until age 70-1/2 because she is the spouse?? This is contrary to what I have always understood, as I thought the spouse would have to take RMDs until 59-1/2 from the inherited IRA, then at that time, she could roll the inherited IRA into her own IRA and avoid RMDs until age 70-1/2.
I should reiterate, she has rolled assets into her inherited IRA, and there are no assets remaining in his original IRA.
Permalink Submitted by mk foss on Fri, 2011-11-11 22:08
The surviving spouse of an individual that dies before his/her required beginning date can defer taking distributions until the year the original IRA owner would have reached age 70-1/2. In your case the survivor was 4 years younger than her spouse so she could defer distributions until 4 years before she reaches age 70-1/2. If she rolls the inherited IRA into an IRA of her own after she’s 59-1/2, she can wait to take distributions until she is 70-1/2.
The provision allowing the surviving spouse to defer is very beneficial for a young surviving spouse. She can take funds if she needs them but nothing is required for an extended period (in your case).
Permalink Submitted by Robin Ross on Fri, 2011-11-11 22:23
Thank you for your prompt response. It makes sense that a spouse would have more flexibility for taking distributions from an inherited IRA, but that point has never been clearly communicated. I greatly appreciate your explanation.
Permalink Submitted by Alan Spross on Fri, 2011-11-11 22:41
One thing to remember in this example is that Jane should NOT forget to roll the inherited IRA over to her own IRA when she is 66 (husband WOULD have been 70.5). If she forgets, then there are two consequences:
1) She must take beneficiary RMDs earlier than she would if she rolled it over
2) Her own beneficiary (successor beneficiary) is treated as a designated beneficiary before this time, but if the rollover is not done then the successor beneficiary loses designated beneficiary treatment. This means that if Jane passed, Jane’s beneficiary would have to continue Jane’s RMD schedule instead of using their own life expectancy. The rollover to Jane’s own IRA will eliminate this problem.
Permalink Submitted by Robin Ross on Fri, 2011-11-11 22:59
So, to pose another scenario, it the ages were reversed and Jane Doe was older than John Doe, could Jane Doe still defer taking RMDs from her [i]inherited [/i]IRA until John would have turned 70-1/2, or would she be required to take it out when she turns 70-1/2?
Thank you again for your information. You guys are awesome!
Permalink Submitted by Alan Spross on Fri, 2011-11-11 23:14
If ages reversed, Jane could still delay RMDs until John would have reached 70.5.
In this case, if she rolled it over to her own IRA before then, her RMDs would start earlier when she reached 70.5.