spouse and non-spouse beneficiary of IRA
I have a client 69 years old. His wife is 42 and his daughter is 48. Both are 50/50 beneficiaries of his IRA. I understand that if multiple beneficiaries are named, the surviving spouse(42 y/o wife) can still execute a rollover to her own IRA, but she cannot make the election to remain as beneficiary of the account. Therefore, assuming death of the IRA account holder today, she would not have the flexibility to withdraw funds penalty free until she turned 59.5.
Question:
Since wife isn’t sole IRA beneficiary, if she wants the option of choosing to accept her portion as an inherited IRA as a beneficiary, should the account be split while the IRA owner is still alive and name wife 100% on IRA #1 and daughter on IRA #2? Or can she wait until the IRA owner’s death and then split prior to the Sept. 30th deadline of following year? I was wondering if this would work since beneficiaries aren’t “technically” determined until the Sept. 30th date of the following year. Thanks and if I am mistaken on any of the above please lmk.
Permalink Submitted by Alan - IRA critic on Thu, 2021-01-14 02:18
One problem here is that the IRS has never explained if “sole spousal beneficiary” is only determined at death or if surviving spouse creates a separate inherited IRA account at a later date, if that spouse can then assume ownership of that inherited IRA. I have never heard of the IRA resisting a later assumption of ownership if the spouse is the only beneficiary of the IRA at the time of assumption.
In your example, spouse can certainly do a direct transfer to a separate inherited IRA at anyone, and in fact as soon as either beneficiary presents a death Cert and beneficiary info, a separate inherited IRA account will be created for their share. This will allow the surviving spouse to take penalty free distributions before 59.5, and still should not prevent her from electing ownership of the inherited IRA later on.
Creating the separate inherited accounts prior to 9/30 probably adds more credibility than waiting longer. The 12/31 deadline for creating separate accounts means less now than pre Secure since most non spouse beneficiaries will fall under the 10 year rule.
So I think you are on the right track, and the IRS has not done a good job of clarifying some of the related questions.