Same-sex married couples – Spousal beneficiary in IRAs might be coming
An attorney colleague just called me about a same-sex spouse couple (in NY) where one of the partners died last month. There are multiple 401k & IRA accounts in the decedent’s name with the spouse as sole beneficiary. Here is the question:
The challenge to DOMA case now at the Supreme Court could result in a ruling this year that would overturn DOMA and result in Federal spousal tax rules to be applied to same-sex married couples.
Should we hold off transferring any accounts into a non-spousal IRA account and wait to see if we can get spousal rollover status after the ruling?
In the past when IRA rules have changed, were they retroactive to Jan 1 in the year of the change?
Permalink Submitted by Alan - IRA critic on Fri, 2013-03-15 19:02
IRA rules changes in the past have been prospective and some have been retroactive with a transition period. For example, when the RMD rules were changed, there was a choice for 2001 and the changes were mandatory for years after that. I don’t think it is possible to predict court decisions and the IRS Regs that would follow. That said, there is no differentiation between a spousal inherited IRA and a non spouse in the account titling. If the non spouse were considered a spouse retroactively, the person could do the spousal rollover, just as a current spouse can maintain the inherited IRA for an unlimited period and roll it over to their own name whenever they wish. I think the key points would be the retroactive spousal status to the DOD vrs some other date as determined by the court, and for the NYS return what options are provided by the NYS DOR. I doubt that NYS would be more restrictive than federal rules if there is any state discretion affecting NYS treatment. Note that if the 401k requires the 5 year rule and participant passed prior to the RBD, the beneficiary needs to complete an inherited IRA transfer by 12/31/2014 to get the stretch of an inherited IRA in the event the court does not make the beneficiary a spouse. Finally, any court decision is not likely to be comprehensive enough to factor in all the retirement plan ramifications, and it would take more time for the IRS and perhaps even Congress to clarify the many issues that will remain unclear.