I have a client (DOB 7/23/1961) who was the beneficiary of her spouse’s IRA (spouse DOB 10/16/1945). The date of death of the spouse was 10/7/2015. At the time my client’s spouse died and she received the funds she was unsure if she might need to access the account to use for living expenses. Because she is under age 59 1/2 we established an Inherited IRA for her to give her access to the account without the 10% early penalty. Her RMD for 2016 is calculated at $3,313.78 (12/31/2015 balance of $98,088.00).

Since we set up the IRA the client found out about a life insurance policy that she was not originally aware of and after it was paid to her provides enough funds that the client will not need to access the retirement funds until after age 59 1/2. The client now wants to transfer the Inherited IRA to an Individual IRA in the client’s name.

First question – Can the client transfer the Inherited IRA to an Individual IRA (This funds came from her spouse)?

Second question – If yes to first question, does she have to process the 2016 RMD prior to transferring the account to her own IRA or can she transfer to her own IRA without taking the 2016 RMD since she would be closing the inherited IRA in 2016?