Timing of Spousal Rollover Adjusting RMD Calculation
I received a question today regarding the timing of a spousal rollover and whether or not it effects the RMD calculation.
Context: an IRA holder who had not hit the required beginning date yet (67 years old) passed away in 2021. Her surviving spouse is past the required beginning date. He wanted to know options regarding the account.
It is my understanding that for the year of death regardless of whether or not he exercises the spousal rollover this year, the RMD for the year will be calculated based off the deceased’s age and it would remain that way so long as he left it in the beneficiary IRA. If he elected to roll it over, for all subsequent years the RMD would be calculated based on the surviving spouses age as he is now the owner. If he wanted to start taking RMDs in 2023 from the balance but be exempt from 2022, he could leave it in a beneficiary IRA and then exercise his spousal rollover after December 31, 2021.
I have received a piece of advice though that if he were to execute the rollover within the first 60 days of the 2022 calendar year, it would serve as an adjustment to his 2022 IRA balance and effect his RMD but not if he did it later in the year. I’ve scoured the IRS website and this website to find out where this first 60 days lookback window exists and I haven’t been able to find anything. I’m inclined to think they misunderstood the question or got the information confused with a 60 day rollover, but thought I’d poll the audience here to see if anyone could indicate whether this first 60 days spousal rollover rule exists or not.
Permalink Submitted by Alan - IRA critic on Thu, 2021-12-02 22:38
You are correct, 60 days is not applicable to this situation. Assuming ownership by a sole spousal beneficiary after the year of spouse’s death results in the surviving spouse being treated as the owner for the entire year. So if the surviving spouse elected to assume ownership in the first week of January, 2022, his Uniform Table 2022 RMD for this amount would be based on the 12/31/2021 inherited account value and the surviving spouse’s attained age in 2022. He should do the “spousal rollover” as an election to assume ownership, which is not a distribution, does not use up the one rollover in 12 months, and is not reportable on his return.
Since the deceased spouse would not have been 72 until 2026, if the survivor left the IRA as inherited, there would be no RMDs for 2021-2025. But the surviving spouse could still take any distributions desired in that time period. The 1099R would be coded 4 as a death benefit. Assumption of ownership would start the RMDs on this balance sooner.
What if the survivor took an actual distribution from the inherited IRA in 2021-2025. Since this distribution is not an RMD, any portion of it could be rolled over to his own IRA. The rollover would increase his own IRA balance at the end of that year and increase his owned IRA RMD in the following year. It would also use up his one permitted 60 day rollover.
IRA owner here passed well before RBD, so there is no RMD due for 2021 or any year prior to 2026 as long as the inherited IRA remains as such. If the surviving spouse did not assume ownership in 2026 beneficiary RMDs would begin that year using the survivor’s age and the single life table. But if the survivor failed to take that beneficiary RMD in 2026, he would default to owning the IRA in 2026 and the 2026 RMD would be based on the Uniform Table.
Permalink Submitted by [email protected] on Fri, 2021-12-03 16:15
So just to make sure I’m understanding your first paragraph; if he made the ownership election in the first week of January 2022 of the account balance, his RMD for 2022 would not be based on an IRA balance that includes the inherited IRA amount. The RMD for 2022 for that balance would remain based on the deceased’s spouse’s age and be 0?
Permalink Submitted by Alan - IRA critic on Fri, 2021-12-03 17:14
No. If the survivor assumes ownership at any time in 2022, he is treated as owning the former inherited IRA the entire year of 2022. The inherited IRA balance on 12/31/2021 would be used to calculate the RMD for 2022 using the Uniform Table and survivor’s attained age in 2022.
If after assuming ownership, he transferred the new owned IRA into another IRA he already owns, the RMD for 2022 would be based on the total of the 12/31/2021 balance of both the already owned IRA and the balance of the former inherited IRA on 12/31/2021.
Permalink Submitted by [email protected] on Fri, 2021-12-03 19:30
Got it, so if he assumes ownership of it at any point in 2022 it is getting included in his 2022 RMD calculation and would increase it?
Permalink Submitted by Alan - IRA critic on Sat, 2021-12-04 03:36
Yes, but if he does not want his RMD increased, he should wait to assume ownership to the year in which the first beneficiary RMD would be due. At that time the owned IRA RMD would be lower than the inherited IRA RMD.
Permalink Submitted by Peter Tobin on Fri, 2021-12-03 20:40
Alan – I have you on the other question but in reviewing the above comments. What action constitutes ‘assuming ownership’? Is an Inherited IRA – the ‘Beneficiary IRA’ (as stated above)? Does ‘assuming ownership’ happen when an Inherited IRA is directly funded by a deceased spouse’s retirement plan – automatically? Or does some action on the part of the ‘Inherited’ trigger ownership, such as taking an RMD or rolling it over / combining it with an existing plan.As above, Deceased spouse is younger and Inherited IRA owner is over 72, can RMD’s on Inherited IRA’s directly funded by spouse’s plan also be deferred – until deceased spouse would be 72 for Inherited IRA? By just NOT taking any distribution each year?I am trying to determine IF an RMD is (was) required for ANY of the deceased (2017) spouse’s retirement accounts now in ‘name’ of surviving spouse (77).
Permalink Submitted by Alan - IRA critic on Sat, 2021-12-04 04:06
Yes, a beneficiary IRA and inherited IRA are the same.
Assuming ownership is done by informing the custodian that the beneficiary is electing to assume ownership. Ownership is also acquired by making a regular contribution to the inherited IRA, or by failing to take a complete RMD from the inherited IRA which defaults the status to ownership.
An RMD or other distribution does not change the status to owned. A distribution can be taken from the inherited IRA and then rolled into an owned IRA, but this uses up the one permitted rollover over 12 months.
A sole spousal beneficiary is not subject to RMDs until the year the deceased spouse would have reached 72. This applies to all inherited IRAs of the spouse who was the sole beneficiary. Of course, needed distributions can be taken that are not RMDs.