IRA with no beneficiary paid to decedent/spouse joint bank account then spouse rolled over IRA to an individual IRA
The decedent IRA had no named beneficiary. The will stated that no IRA was to be paid to any entity other than an individual. The estate went to the spouse and a family trust for the benefit of the spouse and their daughter (all on good terms). All other decedent IRA’s went to the spouse.
The spouse/executor (and another executor) directed the IRA trustee to deposit the money in a joint (decedent and spouse) bank account. Spouse then rolled over the amount to her own IRA (not a beneficiary IRA) with the same IRA trustee. Form 1099-R prepared in name of estate. Form 5498 prepared in name of spouse.
Is this an allowable rollover? Were the reporting forms prepared correctly? The financial advisors seem less than confident that the tax is not due or that the rollover was allowable. They suggest that I “explain it to the IRS” if audited as I am preparing the spouse’s income tax return and fiduciary returns for the estate and the trust.
I have read everything I can find, talked with two other CPA’s, and both of the financial advisory firms involved with the decedent/spouse. Any suggestions would be appreciated.
Permalink Submitted by Alan - IRA critic on Wed, 2021-04-28 23:17
The executor has a right and duty to distribute the estate, including the IRA. Normally, the executor will assign the inherited IRA through the custodian directly to the will beneficiaries, and no distributions are taken until those beneficiaries request distributions from their own inherited IRAs. In this case, the entire inherited IRA was distributed while it was still titled to the estate, as the 1099R indicates.
The spouse then did the spousal rollover to her own IRA, a transaction that the IRS has approved in many prior PLRs. Some custodians resist these rollovers, but this one apparently did not meet any custodian resistance. However, the estate 1041 is going to have to report a non taxable rollover and this will likely require a thorough explanatory statement with the 1041.
The prior PLRs suggest that when the spouse is the executor and sole beneficiary of the estate, approval is rather automatic. However, in this case there are other estate beneficiaries. I do not know whether this will make any difference when the 1041 is filed or not, probably depends on who at the IRS examines the 1041.
The 5498 is typical of a spousal rollover, except in many cases it is done by a non reportable transfer with no 1099R or 5498. There is a 5498 to match up to the 5498, but the TINs differ so the explanatory statement with the 1041 should indicate the name and SSN of the spouse so the IRS can match the two.
This will probably end OK. Usually the problems are with the IRA custodians, but no resistance there, and probably none from the IRS if the 1041 includes proper documentation.