IRA Beneficiary – Spouse
A new client has a beneficiary IRA that she inherited from her husband who passed away three years ago. Apparently at the time she elected to be treated as a beneficiary, instead of treating the IRA as her own. However, she has never taken RMDs from the Bene IRA account. I know she can change the account to her own now as the surviving spouse, but is there any way to retro-actively treat it as her own for previous tax years? Otherwise it appears there are penalties due for RMDs not taken in the prior years.
Permalink Submitted by Alan Spross on Thu, 2012-11-15 22:07
If she was the sole beneficiary she automatically is treated as the owner in the first year she fails to take her RMD as a beneficiary.
Her husband passed in 2009, and all RMDs were waived for 2009. Also, if he passed prior to the year he reached 70.5, his spouse is not required to take an RMD as beneficiary until that year arrives.
But if his RBD had passed at death, her first RMD as beneficiary would have been 2010. If she failed to take the 2010 beneficiary RMD, she defaults to ownership status of the IRA. If she was under 70.5 in 2010, she still has no RMDs until the year she reaches 70.5.
If you can provide what there ages would have been at the end of 2009, I can be more specific about her case. Also need to know if she was sole beneficiary.
Permalink Submitted by Dennis Prout on Fri, 2012-11-16 13:27
The wife was the sole beneficiary. At the end of 2009, the husband would have been 57, and the wife would have been 58. Sounds like we’re OK here after all?
Permalink Submitted by Alan Spross on Fri, 2012-11-16 19:04
She is OK since there were no beneficiary RMDs required until the year he would have reached 70.5.
It was wise to initially retain the inherited IRA in that form, since it allowed her to take penalty free distributions prior to age 59.5. But now that she has passed 59.5 and the penalty is no longer an issue, she could roll this over to her own IRA unless delaying the start of her RMDs for one year is viewed as beneficial. As a beneficiary, she starts RMDs 10 years from now and as owner 9 years from now.
If she remains as beneficiary for that extra one year deferral of RMDs, she should be sure to assume ownership no later than the year her husband would have reached 70.5. That will reduce her RMDs once they must begin as beneficiary, and also allows her one beneficiaries to get a new stretch when they inherit.