Who is the Original Depositor
Hello,
I have a situation where a person dies in 2020 and names their wife as 100% beneficiary. Before claiming the assets the wife also dies a year later in 2021.
My back office is saying that the husband is the original depositor because the funds came from his account but the IRS says that if the spouse doesn’t take a beneficiary distribution they accept the funds as their own and ergo the wife would be the original depositor. Could you tell how you would interpret this situation? Any feedback would be greatly appreciated.
Thank you.
Permalink Submitted by Alan - IRA critic on Tue, 2021-12-21 02:20
Your back office is apparently using the term “original depositor” to signify the plan owner. Husband IS the original depositor and plan owner, however the surviving spouse can be treated as the owner only with respect to the surviving spouse’s beneficiary’s RMDs. The combination of the tax code, IRS Regs, and Pub 590 B can be difficult to ferret out.
If the IRA sole spousal beneficiary fails to take a beneficiary RMD by the applicable deadline, they are treated as having elected to assume ownership of the IRA. This is the provision you are referring to. However, it appears that passing before that default date does not result in defaulting to owership status. To default to ownership status with respect to successor beneficiaries the sole spouse beneficiary must live to the end of the first beneficiary RMD distribution year OR make a contribution to the IRA. The wife here did not reach the end of the year before passing, so did not default to ownership.
However, there is a similar provision conditioned on the IRA owner passing prior to RBD with a sole spousal beneficiary. See “Death of surviving spouse prior to the date distributions begin” on p 10 of Pub 590 B. In your case the surviving spouse did pass prior to the date distributions must begin, but did the IRA owner pass prior to RBD? If so, the surviving spouse would be treated as the owner, and the successor beneficiaries of the wife would be treated as designated beneficiaries, possibly even EDBs.