Spousal IRA & Roth inherited CD’s
Wife passed away in 2007 and left husband with inherited CD’s at a banking institution. The CD’s have 6 years term left to them.
Both wife and husband were past the RMD dates. The RMD for the wifes account was paid to the husband prior to the end of 2007, by check made out to his name.
Husband was assuming that bank would simply move the CD’s into his existing IRA account (same bank) and retitle them in his name as requested.
Now the bank is saying they can’t do that, and to maintain the interest rate on the existing CD’s the account must remain in deceased wifes name.
Very confused about this , and the issue of leaving the title in the wifes name.
If I understand correctly , the surviving spouse can take distributions using the life expectancy tables. Should the titling on the account be changed to “wife FBO husband ” ?
Any insight into how to proceed or references to documentation would be appreciated.
Permalink Submitted by Al Fry on Wed, 2008-01-02 22:46
Not unusual, however I think the bank is the one confused. How is he supposed to take RMDs when the CDs are in her name? There should no reason (other than the bank’s rules to get out of the current CDs) they cannot re-title in his name. If they are carried as inherited IRAs (“Joe Husband as bene of Sally Wife”), he may be stuck with the higher Single Life Table RMDs, rather than the Uniform Table. If they insist in renewing at lower rates to get in his name, I would take it somplace else. There should be no Interest penalty, due to death of owner.
Permalink Submitted by Joseph davis on Thu, 2008-01-03 00:07
As I mentioned, they were willing to cut a check in the husbands name out of the deceased wifes CD. They seem to be treating that as a partial distribution for the RMD.
It would have been a lot simpler if they were willing to transfer title of the IRA and ROTH CD’s.
Lacking that , the option to keep both as inherited IRA’s seems the only way to keep the CD’s active.
Since this is the spouse, are there any downsides to this? So far my research indicates that as long as the IRA RMD’s are taken (the ROTH doesn’t have any RMD) there should be no problem keeping it this way.
How about titling? New beneficiaries were already named.
Is there anything I’m missing here, and could the account be transferred at ANY TIME to the husbands name (such as when the CD’s mature in 6 years)?
Permalink Submitted by Alan Spross on Thu, 2008-01-03 05:50
An inherited spousal IRA can be assumed at any time, ie right away or many years after maintaining the IRA in inherited status. Passing with a CD IRA is very problematical in several areas:
1) Early withdrawal penalty – most banks waive at owner’s death, but this is NOT a requirement.
2) Transfer of ownership – must be allowed, but bank has authority to then terminate the CD and perhaps a favorable interest rate.
3) Roth IRA provision in the agreement for spousal death – apparently there are agreements that make spousal ownership automatic. There may be chance this exists in your situation and the bank staff is clueless on the matter. Since this would solve the problem of preserving the CD rate and avoiding RMDs for the survivor, better get ahold of the CD IRA agreement and check out the wording. If spousal ownership is not automatic, then the spouse is subject to RMDs and the loss of tax free deferral must be weighed against the difference in CD rates currently available or available as time goes on. Obviously, the current cycle is one of falling rates.
4) The bank does not have a choice with respect to making the RMD available for the status that applies to the account, either while owner lives or afterward. This should be clear in the IRA agreement.
Again, your assumption that the Roth does not have an RMD is not correct unless the spouse is allowed to assume ownership or the agreement provides this automatically. While the RMD will almost surely be tax free, there is a loss of future tax free earnings.
As Al pointed out, the TIRA maintained in inherited status will require a larger RMD for the survivor than if survivor assumed ownership, but here the difference is minor in relation to the Roth where the difference is RMD vrs no RMD at all.
There is a lesson here for older risk averse IRA owners who like CDs, but there may be some headaches for surviving spouses. Of course, CDs are about the only reason to even consider a bank for IRA custodianship and even here, the product may not be consumer friendly.
Permalink Submitted by Joseph davis on Thu, 2008-01-03 19:48
Where are you getting that ROTH info from. My research indicates otherwise. For example.
Spousal Beneficiary
If a spouse is listed as the beneficiary of a Roth IRA, upon the owner’s death, he or she keep the Roth IRA intact or elect to roll the Roth IRA over to his or her own Roth IRA. In either case, the spouse would not be required to take any distributions during his or her lifetime and would be allowed to designate new beneficiaries.
http://www.investorguide.com/igu-article-850-estate-taxes-understanding-…
This may not be the final word on it, but I have seen no wording anywhere that says you cant keep a ROTH in beneficiary status and therefore not have to take any rmd from it.
Admittedly , pub 590 is a bit vague on this point.
Permalink Submitted by Al Fry on Thu, 2008-01-03 20:20
IRS Pub. 590, p.62, last paragraph reads “If the sole bene is the spouse, he or she can either delay distributions until the decedent would have reached age 70 1/2, or treat the Roth IRA as his or her own.”
Permalink Submitted by Joseph davis on Thu, 2008-01-03 21:51
I read that , and Im inclined to agree that is seems to prohibit remaining as the beneficiary and not taking any RMD.
As usual , there is conflicting information on this floating around.
Worst case, since we dont want to break the CD’s, spouse could simply take the RMD until the CD’s mature, and then transfer the ROTH into his name, ending the need to take RMD’s.
Would be nice to hear some other feedback if someone knows / or has gone through this particular dilemma.
Permalink Submitted by Al Fry on Thu, 2008-01-03 22:36
To me, it could not be any clearer, especially if you read the paragraph on p. 62 under the heading “Distributions After Owner’ Death”. Basically the same rules apply to both TIRAs and Roths.
Permalink Submitted by Denise Appleby on Fri, 2008-01-04 00:45
[quote=”[email protected]“]Where are you getting that ROTH info from. My research indicates otherwise. For example.
Spousal Beneficiary
If a spouse is listed as the beneficiary of a Roth IRA, upon the owner’s death, he or she keep the Roth IRA intact or elect to roll the Roth IRA over to his or her own Roth IRA. In either case, the spouse would not be required to take any distributions during his or her lifetime and would be allowed to designate new beneficiaries.
http://www.investorguide.com/igu-article-850-estate-taxes-understanding-…
This may not be the final word on it, but I have seen no wording anywhere that says you cant keep a ROTH in beneficiary status and therefore not have to take any rmd from it.
Admittedly , pub 590 is a bit vague on this point.[/quote]
As Alan indicated earlier, [quote=”alan-oniras “]…there are agreements that make spousal ownership automatic. There may be chance this exists in your situation and the bank staff is clueless on the matter….[/quote]
For your case, the beneficiary must consult the Roth IRA agreement.
Talking to the customer service representativeness at the bank may not be the best approach, as they may not have read the agreement, and is simply repeating what has been passed from one person to another ( like a Chinese secret, the end result will change).
As far as articles, they usually speak in general terms.
Look at Article V of the IRA agreement, and Article V111.
Permalink Submitted by Joseph davis on Fri, 2008-01-04 03:02
I did as you suggested Denise (should have done so on my own)
I notice that the terms of the IRA and ROTH differ, and here’s what they say in the relevant ROTH section V.
3. If the depositor’s surviving spouse is the designated beneficiary, such spouse will then be treated as the depositor
Now I’d think that would allow the spouse to assume the terms of the existing CD, since that is how the depositor was treated.
There’s nothing I can find that would mandate the breaking of a CD before that ‘treatment’ could take place.
I’m less concerned about the IRA portion of the account , since the RMD’s are the same in any case .
So should I wave that clause in their face and see what they say?
Permalink Submitted by Denise Appleby on Sat, 2008-01-05 20:24
I would ( waive that clause in their faces). If they refuse to allow the beneficiary to assume ownership of the CD, it seem they would not be abiding by the terms of their own agreement. They may be unaware of the provision, and may even appreciate the education. If you meet any resistance, I recommend speaking with the branch manager.