Inherited or Rollover IRA if spouse not sole beneficiary?
Can a spouse who is not the sole beneficiary of an IRA always choose to rollover the assets of a deceased spouse’s IRA?
Is it just a matter that separate accounts by Dec 31st of the year following the year of death then the surviving spouse can rollover the IRA into her name?
Is there any issue when the primary beneficiary is a properly worded conduit trust (i.e., assuming the trust is worded correctly, can the surviving spouse rollover the account?)
Last, does any of this change is the deceased spouse was taking RMDs (i.e., over age 70.5)?
Permalink Submitted by Alan Spross on Sat, 2008-03-15 01:16
A spouse beneficiary with non spouse beneficiaries can roll over their share at any time, but they cannot elect to treat the IRA as their own. If the shares are left in a single account, the oldest beneficiary will determine the RMD, and if the oldest is the surviving spouse, they will not be able to recalculate their life expectancy, ie the 1.0 reduction applies each year. And of course Table II cannot be used at all. Also see below if decedent passed prior to RBD.
If the 12/31 deadline of the year following death for separate accounts is missed, the non spouse beneficiaries must continue to use the shortest life expectancy of the designated beneficiaries as of 9/30 following the year of death. If that happens to be the surviving spouse, who later rolls over their share to their own IRA, the non spouse beneficiaries are still stuck with the surviving spouse’s non recalculated life expectancy even if they also subsequently create separate accounts. Therefore, the 12/31 deadline is only critical to the non spouse beneficiaries.
When a conduit trust is the designated beneficiary, and the surviving spouse is the trustee and sole trust beneficiary, there have been numerous PLRs allowing the survivor to roll over the IRA to their own account.
None of the above is affected by the age of the deceased spouse other than if there happened to be a beneficiary older than the decedent who passed on or after the RBD, the decedent’s remaining non recalculated life expectancy can be used instead of that an older beneficiary. And if the decedent passed prior to RBD, the 5 year option is also available.
Permalink Submitted by Bruce Steiner on Sun, 2008-03-16 13:30
If the spouse’s share is in a conduit trust, she won’t be able to roll it over.
If her share is in a trust, she can only roll it over if she has the right to withdraw all of the assets of the trust. There have been lots of private letter rulings allowing that, though I find it puzzling that anyone would create such a trust. If you want the spouse to have that degree of control, you could simply leave the assets to the spouse outright.
I also find it puzzling that there has been so much discussion of the conduit trust. It doesn’t seem to make sense very often. If the beneficiary lives to life expectancy, nothing will be left in the trust. All of the assets will have been distributed to the beneficiary, and will be included in the beneficiary’s estate for estate tax purposes. To the extent the trust provides protection against the beneficiary’s potential creditors (including spouses), that protection will be lost.
For more on this, see my article on trusts as beneficiaries of retirement benefits, in the March 2006 issue of the BNA Tax Management Estates, Gifts & Trusts Journal: http://www.kkwc.com/docs/AR20041209132954.pdf