Where is IRS input on doing a spousal assumption on an Inherited IRA?

Submitted by Jon Steffen on Tue, 2023-09-05 16:59

Jane Doe’s husband John passed away 2/2/2018

Jane was under 59.5, so she did a beneficiary IRA of her husband’s IRA so she could spend the money without 10% penalty before age 59.5.

Now that she is over 59.5 and she wants to combine accounts, she wants to assume the inerhited/beneficiary IRA as her own.

I have an FMO swearing up and down she only had 1 opportunity to do that when John died in 2018.

I swear we’ve completed this maneuver at TD Ameritrade 5-10 times, but whenever I search for it, I always get info about the options a spouse has at the time of death and not years later.

Can you point me in the right direction of where the IRS states if somebody can, or can’t assume an already titled inherited IRA as their own?

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Permalink Submitted by David Mertz on Tue, 2023-09-05 17:59

CFR 1.408-8 Q&A-5(a) states:
The surviving spouse of an individual may elect, in the manner described in paragraph (b) of this A–5, to treat the spouse’s entire interest as a beneficiary in an individual’s IRA (or the remaining part of such interest if distribution thereof has commenced to the spouse) as the spouse’s own IRA. This election is permitted to be made at any time after the individual’s date of death. In order to make this election, the spouse must be the sole beneficiary of the IRA and have an unlimited right to withdraw amounts from the IRA.
https://www.law.cornell.edu/cfr/text/26/1.408-8

Permalink Submitted by Alan - IRA critic on Tue, 2023-09-05 18:10

In the past there has never been a time limit for the spousal election to assume ownership. However, the proposed Secure Act Regs (p 254) state that the deadline for the spousal election is the later of the end of the year after the year that deceased spouse passed or the end of the year that the surviving spouse reaches RMD age which in your situation would be age 73 or 75. Therefore, even under the time restrictions in the Secure Act, this surviving spouse would still be eligible to elect ownership now and for a few more years. While it is remotely possible that this particular IRA agreement imposes the restriction described by the FMO, I have never heard of one that did, so I would contest the indication made by the FMO. Otherwise, the surviving spouse would have to use up the one permitted 60 day rollover to move the funds into her own IRA.
As to your question, under the existing rules IRS Reg 1.408-8, QA 5 clearly states that a sole surviving spouse can make this election anytime. A link to this Reg follows:
26 CFR § 1.408-8 – Distribution requirements for individual retirement plans. | Electronic Code of Federal Regulations (e-CFR) | US Law | LII / Legal Information Institute (cornell.edu)