Spouse takes IRA distribution from deceased husband to do rollover

Submitted by Daryl Phillips on Tue, 2018-08-07 21:29

The IRA was owned by the husband and held inside an annuity purchased through their local bank. The husband died and the surviving spouse (we’ll call her Susan) told the banker she wanted to rollover the IRA to another bank. The banker instructed the annuity company to send Susan a check for the entire IRA made payable to Susan. Susan has now cashed the check and has plans to invest the cash back into an IRA in her name at the other bank under the “60 day rule”. Question: Is the 60 day rule applicable in this situation? Note: The IRA was never retitled into Susan’s name at the annuity company. It was sent directly from the IRA account of her deceased husband.



Submitted by Alan - IRA critic on Tue, 2018-08-07 22:09

  • Actually, the annuity is held inside the IRA. With respect to the distribution check, the 1099R must be issued to Susan with her SSN on the form. Therefore, she is receiving an IRA distribution and is the one doing the rollover. Nonetheless, IRS guidance does not clarify the answer to this very good question so it is recommended that a surviving spouse avoid this scenario to play it safe.  The IRS has no overt authority to waive the one rollover limitation, but I have not heard of any cases where a spousal rollover was denied due to the one rollover rule, either by the receiving custodian or the IRS.
  • A direct transfer rather than a distribution check will avoid the limitation, and that also includes moving the funds to a different custodian’s inherited IRA rather than an owned IRA. While moving to an inherited IRA to preserve penalty free distributions before age 59.5 can be done by rollover because for rollover purposes of a surviving spouse a direct transfer is not required, there is no clear exemption to the one rollover rule.

Submitted by David Mertz on Tue, 2018-08-07 22:30

  • Yes, this is an indirect rollover subject to the 60-day deadline to complete the rollover.
  • Only one distribution was mentioned so I don’t see where the one rollover per 12 months rule come into play in this case.  But it would have been better to avoid any possibility of a violation of that rule had there been another recent IRA rollover by Susan that the banker didn’t know about (or one might be necessary in the near future) by having had the distribution paid to the receiving IRA account for Susan’s benefit instead of having had the distribution paid to Susan.
  • The banker needs some remedial training with regard to the proper way to move an IRA.

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