Surviving Spouse Beneficiary

Submitted by Stephen Peiffer on Tue, 2023-01-03 22:15

Spouse passed away in late 2022 at age 64. Surviving spouse was age 72 in 2022. Beneficiary is listed as 50% spouse and 25% to each of 2 children. Given the surviving spouse’s age, it would be best to establish a beneficiary IRA (on his/her portion) and delay any RMDs until year 2031 when deceased spouse would turn age 73. Given new Secure 2.0, would it be best to maintain as a beneficiary IRA for year 2023 and then change to Decedent IRA in year 2024? Or, in year 2023 as beneficiary and in year 2024 change to a spousal rollover? Does it matter? Any potential issues?

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Permalink Submitted by Stephen Peiffer on Tue, 2023-01-03 22:17

I meant change to spousal IRA in year 2030.

Permalink Submitted by Alan - IRA critic on Tue, 2023-01-03 23:08

If surviving spouse wants to delay RMDs as long as possible, they should first create a separate inherited IRA no later than 12/31/2023 in order to delay inherited IRA RMDs until the year the deceased spouse would have reached 73, which is apparently 2031. If the separate account is not created by the end of 2023 the spouse cannot be treated as a sole spousal beneficiary and delay RMDs until 2031. If the surviving spouse then assumes ownership of the inherited IRA by the end of 2031, the 2031 RMD will be calculated from the Uniform Table and will therefore be much lower than a beneficiary RMD.
Surviving spouse should be aware that if RMD do not begin until age 81, they will be larger and compressed into fewer years. If the spouse does not need distributions until then for living expenses, they might consider Roth conversions to lower future RMDs and spread the taxable income over more years. Once an RMD year arrives, the RMD must be completed prior to any Roth conversions.

Permalink Submitted by Stephen Peiffer on Wed, 2023-01-04 00:31

That’s the plan. Thanks Alan.

Permalink Submitted by Stephen Peiffer on Sat, 2023-01-14 16:56

Assume info from original scenario above. With the new Post-Death Option for Surviving-Spouse Beneficiaries starting in year 2024, should the following path be taken? 1) Establish Inherited IRA in year 2023. 2) In 2024, change/elect to be treated as deceased spouse. The plan is to delay RMDs as much as possible and complete periodic Roth Conversions in the meantime. If Surviving Spouse should pass before RMDs need to start, then their listed beneficiaries would be treated as original beneficiaries as an Eligible Designated Beneficiary and therefore allow a Stretch possible to them. Thoughts/comments?

Permalink Submitted by Alan - IRA critic on Sat, 2023-01-14 17:50

Its not clear whether Sec 327 of Secure 2.0 does anything to change existing IRA options. It may only expand qualified plan options allowing a spousal beneficiary to be treated as the owner in the same manner as existing rules for IRAs.
If this is an inherited IRA, the surviving spouse can continue as beneficiary and will not be required to take any beneficiary RMDs until 2031. They can then elect to assume ownership in 2031 and the 2031 RMD will be calculated from the Uniform Table using their own age. This will be a lower RMD than the beneficiary RMD. Or if the SS forgets and does nothing, they default to ownership in 2031, and their late 2031 RMD is the lower owner’s RMD. Further, if SS passes prior to the end of 2031 they will still be treated as the owner with respect to their own beneficiary, and their own beneficiary will not be treated as a successor beneficiary.
What remains unclear in the Sec 327 wording is whether the surviving spouse who has elected ownership can use the deceased spouse’s age for RMDs. The wording suggests they might be able to which would reduce RMDs even more, but some major firms feel that the SS age can be used, while other firms indicate that the purpose of this new provision is to bring the options for qualified plans into parity with IRA accounts. However, in the past the Uniform Table could only be used with the owner’s actual age, not the decedent’s age. Therefore, have qualified plans gone from having inferior RMD options for surviving spouses to having superior options, or are they just going to be treated the same as IRAs have been all along? The IRS is going to have to clarify this by the end of the year. Stay tuned.

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