Options for a 80 year old with a 71 year old spouse
I would like to see if there is a benefit to the age difference of the 80 year old husband and 71 year old wife. We want to minimize the RMD.
The wife died this year at age 71. I understand the husband has 3 options: 1) rollover, 2) Inherited IRA and 3) treat her IRA as if it were his by designating himself as the account owner. If he choose the third option, who would we base the life expectancy and which chart would we use?
Thank you for your help!!!!
Permalink Submitted by mk foss on Fri, 2012-07-06 22:35
There are 2 situations where an age difference is considered when both have passed 59.5:
1. If one spouse is 10 years younger than the other
2. If the decedent had not attained age 70.5
Neither of these apply in these circumstances.
The rollover is the best choice for many, after the decedent’s 2012 RMD is withdrawn – the balance can be rolled over to a new IRA or combined with an existing IRA. At that point, younger beneficiaries can be named. The survivor uses his life expectancy for future RMDs from the joint table – which is based on two lives. When he passes away his beneficiaries take RMDs based on their age the year after he passes.
An inherited IRA would require that distributions be based on the survivor’s single life expectancy – and his beneficiaries would use the balance of his life expectany for RMDs. The RMDs would be much larger during the survivor’s life and many many times larger than the rollover after he passes away.
Making it his own is just like the rollover but in my experience the paperwork isn’t a straight forward. I recommend the rollover.
Permalink Submitted by Alan Spross on Fri, 2012-07-06 22:54
I agree about the rollover. Options 1 and 3 are the same, but most custodians do not want to process the ownership change using Option 3.
But even though the husband has the option to continue to use the younger wife’s remaining life expectancy ( IF she passed after her RBD) if he maintained an inherited IRA, his RMD will still be larger than if he rolled it over. This occurs because owning the IRA assumes a joint life expectancy with a beneficiary that is 10 years younger under the Uniform Table. If the single life table was used with the wife’s remaining life expectancy, no other lives are considered other than the decedent or the beneficiary.
The rollover will also maximize the stretch for HIS beneficiary because HIS beneficiary will be a designated beneficiary when the husband passes, rather than a successor beneficiary.
Permalink Submitted by Bill Beeler on Sat, 2012-07-07 20:38
Hi Alan and mgtf4cpa,
I understand a rollover will be the husband’s best option. Please help me understand the option where the suvivor can treat his deceased wife’s IRA as if it were his by designating himself as the account owner. In this case, which life expectancy would we use? They both started RMDs and they were age 80 and 71 this year (year of death for the wife).
I understand it may not result in the lowest RMD for the husband but is there a senerio where we can use the deceased wife’s life expectancy?
Also, I am not sure I understand Alan’s reply. Where does the “joint life expectancy with a beneficiary that is 10 years younger” apply? I do not think the spouse is 10 years younger???
Thanks again!
Permalink Submitted by Alan Spross on Sat, 2012-07-07 23:16
Re titling the inherited IRA as the survivor’s own IRA has exactly the same RMD implications as rolling the amount over to his own IRA. Either way, he becomes the owner and his RMDs are the same as any other IRA he may already own. But many custodians may not want to title his as owner on the same account and would require him to open a new account or roll it over.
While maintaining his interest as a beneficiary is a poor choice because it will increase his RMD and hurt streting options for his beneficiary, his actual RMD as beneficiary will be the longest life expectancy between him and his wife. This is ONLY possible when death occurred AFTER the RBD (see NOTE below). Since his wife was younger his beneficiary RMDs would be less using her remaining life expectancy rather than his. However, those RMDs are still larger than if he rolled the account over.
Even though he is now single he still uses the Uniform Table after he rolls it over. The uniform table RMDs are lower than the single table because they assume joint life expectancy with a beneficiary that is 10 years younger. This still applies for single people and/or regardless of who the beneficiary actually is. This is the reason that the Uniform table he will use as owner will produce a lower RMD even though he was 9 years older than his wife.
Let’s assume next year he will reach 81 and his wife would have reached 72, and the 12/31/2012 value of the inherited IRA is 300,000.
1) If he rolls it over, his divisor from the Uniform Table is 17.9. The RMD would be 16,760. The divisor does not reduce by 1.0 each year so each year thereafter he would get a new divisor from the Table.
2) If he remains beneficiary, his divisor from the Single LIfe Table is 15.5. RMD would be 19,355. That’s 15.4% higher. And the difference will be even greater in years after that because the divisor must reduce by 1.0 each year, eg to 14.5, then 13.5 etc.
NOTE: You need to verify that his wife died after her RBD, as it is possible to be 71 before the RBD. To verify you would need to know her DOB and DOD to be sure she passed after the RBD. This would affect her RMD for 2012, but would not affect HIS RMDs for 2013 and beyond if he rolls it over.
Permalink Submitted by Bruce Steiner on Sun, 2012-07-08 14:21
He might want to consider either (i) rollover followed by Roth conversion, to eliminate required distributions during his lifetime going forward, or (ii) disclaiming if his children or grandchildren are the contingent beneficaries (or his children are the first contingent beneficiaries and his grandchildren are the second contingent beneficiaries) so they can get a longer stretchout.