Beneficiary of younger spouse IRA

Submitted by Roger Tee on Fri, 2018-12-14 16:32

Spouse dies (husband) at age 65.
Surviving spouse (wife) was 68 at time of his death.
Upon wife turning 70.5 she began taking her own RMDs.
Leaves husband’s IRA alone.
Upon year in which husband would have turned 70.5 what are wife’s options now?

Does she have to roll it over to an inherited IRA? Or can she roll it over to be combined with her own IRA?
If she rolls it over to her own IRA, does she have to take RMD for the husband for current year first?
Basically, is it best to inherit (into beneficiary/inherited IRA) or to assume it as her own now? Or can she assume it as her own and combine with her current IRA account?

Both husband and wife have approximately $300,000 in their IRAs.



Submitted by Alan - IRA critic on Fri, 2018-12-14 17:54

She should elect to assume ownership of the inherited IRA. If she has not already had it retitled as an inherited IRA she will have to provide a death certificate and submit her own data (SSN, address, beneficiary etc). She can then do a non reportable transfer into her current IRA. Her RMD for 2018 will be based on her own age and the Uniform Table will apply and the inherited IRA RMD will not be necessary.  

Submitted by Roger Tee on Fri, 2018-12-14 18:19

and what is to stop her from just leaving the account as is and taking RMD’s from it based upon her age?or why not transfer to a beneficiary account (inherit) and base it off her age, etc.?just wondering the 2 distinctions Alan, and I appreciate your time.

Submitted by Roger Tee on Fri, 2018-12-14 18:09

thank you. what if she has already begun process of retitling it as inherited IRA?so what you are saying is, she can now combine his $300,000 with hers, and take a 2018 RMD based upon the uniform table and her age on the whole $600,000 even though she had already begun RMDs a couple years ago?

Submitted by Roger Tee on Fri, 2018-12-14 18:10

and why would anyone ever elect to continue keeping the IRA as inherited (as benificiary) rather than assuming (once both parties are 70.5)?

Submitted by Alan - IRA critic on Fri, 2018-12-14 19:44

  • There is no benefit from keeping the IRA as inherited at her age, and now that husband would have been 70.5 she would have to take a beneficiary RMD that is much higher than that of an owned IRA RMD. Therefore, if the IRA is currently titled as inherited (showing her as beneficiary of husband), she should elect to assume ownership. By doing so her RMD for 2018 will be based on her owning the IRA and the Uniform Table is used to calculate her RMD. Owning the IRA will also allow her beneficiary to use the life expectancy stretch when she passes, which could not be done if she passed while still a beneficiary.
  • In addition, if she took a distribution from the inherited IRA, that would be a beneficiary distribution of a beneficiary RMD and the RMD could not be rolled over. Therefore, her RMDs would not be reduced until 2019. And if she did a 60 day rollover, she is subject to the one rollover limitation for 12 months and could not do another 60 day rollover for another 12 months. This is why she should avoid a distribution and rollover, and if she wants to transfer the funds to her own IRA to consolidate them, that should be done by a non reportable direct transfer.
  • She began RMDs on her own IRA at 70.5. However, since no beneficiary RMD was required on the inherited IRA until the year her husband would have reached 70.5, she has not been subject to RMDs from the inherited IRA. But if he would have been 70.5 this year, she would have to take a beneficiary RMD from the inherited IRA if she did not elect to assume ownership. Therefore, the order in which she does these transactions is very important for a number of reasons.
  • Note that there is also a default rule that states if she fails to complete a beneficiary RMD as a sole spousal beneficiary, she is deemed to have assumed ownership. So while doing nothing would also result in ownership, it is far better to have the account titled to reflect it’s actual status of ownership.
  • If husband had any basis from non deductible contributions in the inherited IRA, she inherits that basis and adds it to her own IRA by filing Form 8606 and entering the inherited basis on line 2. Finally, she needs to name her own beneficiary if this has not yet been done.

Submitted by Roger Tee on Fri, 2018-12-14 21:39

Okay, so the amounts that are “rolled over/assumed” into wife’s IRA this year…no RMD is necessary on those amounts, correct?The wife just takes her normal RMD based upon her 2017 ending balances.For 2019, her RMD will be higher because of the rollover amounts (end of year 2018 amounts)?

Submitted by Alan - IRA critic on Fri, 2018-12-14 23:15

No. There will still be an RMD on the former inherited IRA balance of 12/31/2017, but it will be an owner’s RMD (Uniform table) rather than the higher beneficiary RMD because the surviving spouse is treated as if she owned the IRA the entire year. This election of ownership should now be done ASAP to avoid the adverse results of a higher beneficiary RMD and loss of stretch to her beneficiary if she were to pass with an inherited IRA.

Submitted by Roger Tee on Fri, 2018-12-14 22:31

Okay, so the amounts that are “rolled over/assumed” into wife’s IRA this year, there is no RMD necessary on those amounts, correct?The wife just takes her normal RMD based upon her 2017 ending balances.For 2019, her RMD will be higher because of the rollover amounts (end of year 2018 amounts).Just seems strange that you can avoid the normal first RMD year for the deceased spouse by rolling over the deceased amounts into your own. Confirm that no RMD is necessary (on the rolled amounts) in the year of rollover.Thanks!

Submitted by Steven Dethlefs on Wed, 2018-12-19 05:21

Interesting as I have a similar situation.So in this situation, where wife assumes her deceased husband’s IRA and it happens to be the year his RMD would have began, wife calculates the value of her husband’s IRA as of 12/31/17 and adds that to what her own IRA value was, and then uses the appropriate divisor (from Uniform Table) to arrive at her total RMD for 2018?Thank you in advance for your reply. 

Submitted by Alan - IRA critic on Wed, 2018-12-19 16:49

Yes, that is correct, except that it does not apply for the year of his death. In all later years a spousal election of ownership would result in the Uniform table applying to the prior year end value for the surviving spouse’s RMD for the former inherited IRA.

Submitted by Steven Dethlefs on Wed, 2018-12-19 17:54

Thank you. So in this case, it is not the year of his death. It is the year he would have had to make his first RMD. If wife rolls it over to her account this year, what table does she use and what date of value does she use to make this first RMD?

Submitted by Alan - IRA critic on Wed, 2018-12-19 18:17

She uses the Uniform Table since she is treated as the owner for the entire year. She uses the prior year end value and her age at the end of the RMD year. In other words, the IRA is now treated as if it was hers all along. The same treatment applies if she fails to assume ownership for awhile, take beneficiary RMDs and then elects ownership in some later year. Further, under the default rule, if she failed to take the full beneficiary RMD on the inherited IRA, she would automatically be deemed the owner in that year. The RMD would still be late, but could be made up and a 5329 filed to request waiver of the penalty.

Submitted by Alan - IRA critic on Fri, 2018-12-14 23:18

As indicated above, an RMD IS necessary on the inherited amount for 2018. What is avoided is the higher beneficiary RMD, but the owner’s RMD replaces that. In other words, the higher RMD is avoided, but the owner RMD is substituted, so the only avoided amount is the difference between the two.

Submitted by Roger Tee on Fri, 2018-12-14 23:42

what is the total amout calculated on? the total combined amount?

Submitted by Roger Tee on Fri, 2018-12-14 23:49

if the IRS considers it the surviving spouse’s IRA once assumed (rolled over) for the entire year of the year rolled over, why is an RMD necessary on the inherited amount? RMD’s are based on prior year balances…

Submitted by Roger Tee on Sat, 2018-12-15 00:19

and if it is true that you must take an RMD of deceased spouse IRA, how is it calculated if surviving spouse is say 75?do you use the divisor 22.9 on both the surviving spouse’s 2017 year end balance AND the amount rolled over? or is it now calucated on the amount combined once the rollover happens?surviving spouse had already take their RMD based upon 2017 year end balance.

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