403(b) Inherited by Spouse

Submitted by Alex Woods on Fri, 2017-03-17 20:06

Wife inherited Husband’s 403(b). Account ownership was changed to the wife’s name (same 403(b) but statements show Wife as owner). Husband died at 69 and would have turned 70 1/2 the year after his death. Wife is 4 years younger and has not remarried.

My understanding is that, unlike an IRA, Wife is not permitted to treat the 403(b) as her own for the purpose of RMD. If Wife keeps the funds in the 403(b):

1. What is the required begin date;

2. How is the RMD calculated (e.g.: what table and using whose age)?

In case I’m dealing with, Husband died 5 years ago, the investment company never informed Wife she had to take RMD, statements simply listed wife as owner with no indication the 403(b) had been inherited, and wife reasonably thought she could wait until 70 1/2 to take RMD using Table III (Uniform Lifetime).

p.s.: What is the purpose (policy-wise) of preventing a spousal beneficiary of a 403(b) from treating the account as her own while allowing it in the case of an IRA, especially when, if I understand correctly, a spousal beneficiary of a 403(b) can rollover the funds into his/her own IRA?



Submitted by Alan - IRA critic on Sat, 2017-03-18 00:18

  • You are correct. She is the beneficial owner not the participant owner. Her first beneficiary RMD became delinquent on  Jan 1 of the year after the year her husband would have reached 70.5. The first beneficiary RMD is calculated based on the wife’s age at the end of the year the first RMD was due. Table I applies. SInce wife was sole beneficiary she re enters Table I in each year thereafter to get a new divisor for age in that year.
  • Qualified plans have never allowed a surviving spouse to be treated as a participant. There may be exception in rare cases for surviving spouses that are ALSO a participant due to working for the same employer. Generally, such plans like to get beneficiaries off the books and are happy to see the account rolled over to an IRA. Note that 403b RMD management is spotty because 403b beneficiary RMDs can be aggregated, so if the wife had inherited more than one of these, her total beneficiary RMD could be taken from just one account. Therefore, one plan does not know whether the RMD has been satisfied or not and does not know if any other 403b plans were inherited.
  • Generally, once a surviving spouse passes 59.5, they benefit by rolling the employer plan to their own IRA where the Uniform Table applies and RMDs are much lower than beneficiary RMDs. This also allows the beneficiary named by the surviving spouse to be treated as a designated beneficiary (get a new stretch) rather than a successor beneficiary (must continue original beneficiary RMD schedule).

Submitted by Alex Woods on Sat, 2017-03-18 07:32

Thank you so much for your reply. Wife will remove the shortfall and file Forms 5329 for each year she should have taken RMD, asking for waiver of the 50% additional tax per the form’s instructions.  After satisfying the current year RMD, she will rollover the remainder of the 403(b) into her own IRA to take advantage of the lower Uniform Table RMDs for future years.

Submitted by Nick Krakosky on Thu, 2022-05-12 14:13

Can a spouse beneficiary of a 403(b) rollover the funds to her own IRA account or do they need to be rolled into an inherited IRA since the spouse can’t treat the 403b as his/her own?

Submitted by Alan - IRA critic on Thu, 2022-05-12 15:01

The inherited 403b can be rolled into surviving spouse’s own IRA, or if spouse is not yet 59.5 or for another reason directly rolled into an inherited IRA. Beneficiary has a choice.

Add new comment

Log in or register to post comments