Spousal Rollover Treated As Retroactive?
In the article linked below, the author indicates that the IRS treats spousal rollovers as retroactive to January 1 of the year complete and goes on to state that this results in a surviving spouse who has been taking RMDs as an Inherited IRA beneficiary not needing to take a final RMD in the year of the spousal rollover.
I have a couple questions based on this article:
- Can anyone point me to specific IRS guidance clarifying that spousal rollovers are treated retroactively by the IRS? I’ve been looking for any official backup for this statement but have yet to find anything conclusive.
- Wouldn’t an RMD still be required in the year of rollover if it were deemed to have occurred on January 1 given that RMDs are calculated based on 12/31 balances? Or is the author suggesting that the distribution is actually retroactive to 12/31 of the prior year?
Permalink Submitted by Alan - IRA critic on Mon, 2024-05-06 14:46
IRS Reg 1.408-8 QA 5(a) states that for the year of the election the RMD is that of the owner, so this election is only retroactive to 1/1 of the election year. This rule does not apply to the year of death of that spouse’s death however as the deceased spouse’s RMD (if any) remains the RMD for the year of death. It’s only retroactive to 1/1 of the election year but the prior 12/31 balance is used to calculate the RMD for the election year. In addition, the long time default rules state that a sole spousal beneficiary who fails to take a beneficiary RMD (single life table) in a year defaults to ownership status for that year (Uniform Table or perhaps no RMD if not RMD age).
2..The proposed Secure Act Regs ( p 254) included an intent to limit the election and therefore the above default rule to later of the year following the death of the spouse or the year in which the surviving spouse reaches RMD age. This was not included in Pub 590B and has received little attention. Under this proposal the surviving spouse who misses this deadline could still do a spousal rollover, but not an assumption. This would result in a beneficiary RMD being due for the rollover year from the single life table which would not be rollover eligible, would result in a 1099R coded 4 and would use up a rollover. Therefore, this would be a negative restriction for surviving spouse’s which appears to be overkill. Perhaps the IRS is reconsidering this restriction.
3) Sec 327 of Secure 2.0 applies all of the above rules to qualified plans, placing them in parity with the IRA rules cited above, but does NOT include an election deadline, which might be an oversight.