spousal beneficiary of IRA
I am a little confused regarding terminology. As I understand it, a spousal beneficiary has the following options:
1. Remain beneficiary on the account or
2. Transfer the deceased spouse’s IRA into his own IRA
I recently read a newsletter that stated “A spouse beneficiary can transfer the entire account to an IRA in his name or treat the account as his own and then take the RMD from that account”.
My question is regarding the wording “treat the account as his own”…..is that the same thing as #1. above? Remain beneficiary of the account? I’m not quite sure what “treat the account as his own” actually means in reality. Thx
Permalink Submitted by Alan - IRA critic on Wed, 2021-04-21 20:13
Treating the account as his own means electing to assume ownership of the IRA by notifying the custodian. Note that this also happens by default if the surviving sole beneficiary spouse fails to take a beneficiary RMD from the beneficiary IRA. A surviving spouse would usually keep the beneficiary IRA until they are 59.5 in order to receive penalty free distributions. Another possible reason is that an older surviving spouse can avoid RMDs longer since beneficiary RMDs do not start until the deceased spouse would have reached 72.
Other than the year of death, the year that a surviving spouse elects ownership is treated as if the spouse owned the IRA the entire year. Therefore, any RMD would be the lower owned IRA RMD calculation (Uniform Table) instead of the higher beneficiary calculation (Table I).
Note that the Secure Act did not affect spousal options that have been available all along, other than if the spouse continues as beneficiary, they have the option to opt out of LE RMDs and into the 10 year rule if they wished, but that would rarely be beneficial.
When the custodian is notified of the election to assume ownership, they may transfer the balance into a new IRA titled with surviving spouse as the owner. That IRA can then be transferred elsewhere if desired. This is all done by non reportable direct trustee transfers, and avoids the spouse from being charged a 60 day rollover (which they may not have).
Permalink Submitted by tomd37 on Thu, 2021-04-22 02:18
Alan, along this line of thinking on spousal beneficiary, is it going to make any significant difference if my primary beneficiary spouse just moves my TIRA into her TIRA if I pass first. I will be 84 and she will be 86 this year and my TIRA represents 98% of our TIRAs. My thinking is at our ages just let her move it over as the annual factors are so similar as we age.
Permalink Submitted by Alan - IRA critic on Thu, 2021-04-22 04:26
Tom, she should elect to assume ownership first, then directly transfer your IRA into her IRA. Whoever the surviving spouse is must complete the year of death RMD for the spouse that passed if it had not already been distributed. This can be done from the combined IRA account.
Permalink Submitted by Robert Ervolina on Thu, 2021-04-22 17:52
Excellent. Thank you