SS flipping from bene to spousal assumption
IRA owner was 10 years younger than spouse. Owner died in 2015. Surviving spouse, as bene, decided at the time (pre-SECURE) to defer bene RMDs until deceased spouse would have turned 70.5.
In early 2022, SS (now age 74) flipped the account to a spousal assumption. Having done that, SS can no longer wait until owner would have turned 72 to start RMDs, right? That option is only available for spouses who stay in bene status, correct?
Assuming that is correct, for RMD purposes, we use Table III rules going forward, meaning the SS’s first owner RMD on this account is due … when?
There was a 12/31/21 balance, but that was back when the account was in bene status. Now that the IRA has been assumed, does the SS have an RMD due on 12/31/22 based on 12/31/21 balance? Or does the SS get a float for this year, making the first RMD due on 12/31/23 based on 12/31/22 balance?
Permalink Submitted by Alan - IRA critic on Fri, 2022-01-28 22:18
Since the SS elected ownership in 2022, they are treated as the owner for the entire year, and the account balance on 12/31/2021 along with the new Uniform Table determines the 2022 owner RMD based on owner’s age at the end of 2022. This 2022 RMD must be distributed by 12/31/2022 (not 4/1/2023) since the deferred distribution deadline only applies to the RMD for year 72.
While this action eliminates 8 more years of no beneficiary RMDs on the inherited balance, distributions spread over 8 more years will reduce the RMDs later on that would be larger with the added tax deferral and could spike SS’s marginal tax rate and IRMAA tier over several years. Of course, depending on how much the RMD increases MAGI for IRMAA purposes, this could also increase IRMAA starting in 2024.
Permalink Submitted by Robert Vashko on Fri, 2022-01-28 22:45
Thanks, Alan. Side question (for anyone who might be reading to answer): when is a spousal assumption “completed”. Like in this case, if the SS decided they made a mistake and it would be better to go back to bene status, when is it too late to undo the assumption? My thought is that it could be undone up until the point that that owner RMD was due (up until that point, it’s arguably “no harm, no foul”?), but I’m not sure how the Service sees it.
Permalink Submitted by Alan - IRA critic on Fri, 2022-01-28 22:55
Unfortunately, the assumption of ownership is irrevocable, whether done by request or whether it occurred by default. Of course, in this case since no beneficiary RMDs were due, default could not have occurred for 8 more years.
I suppose the assumption could be undone if it was determined that the SS was not the sole beneficiary of the IRA and therefore the account was not eligible for assumption. I haven’t heard of any such situations, but it seems likely that some assumptions occur improperly, and there are situations where the the “sole beneficiary” status could be in question due to distributions made to other parties after the DOD.
Permalink Submitted by Robert Vashko on Fri, 2022-01-28 23:40
Thanks. I guess I’m just speaking from a operational perspective – when is the assumption “done”? Is it once the custodian receives the request to assume? Is it when the custodian actually changes the account title to remove the “decedent/FBO” stencilling, leaving nothing but the SS’ name? Maybe there’s no definitive answer?
Permalink Submitted by Alan - IRA critic on Sat, 2022-01-29 00:01
The inherited IRA is assumed when the custodian retitles it as owned. If the beneficiary is able to reach the custodian to abort the assumption before the IRA is retitled, then it would remain inherited.