completing 8606 after spousal rollover when there is basis
Couple, each approximately age 80, are taking MRDs.
Wife dies after taking RMD in early 2007. Surviving spouse rolls over her balance into his IRA in mid 2007. At end of 2006 wife had a balance of approximately $400,000 and husband has balance of approximately $10,000 in their respective IRAs. The basis for each spouse is approximately $3500 at the end of 2006. At end of 2007, after required distributions were taken and after spousal rollover, wife’s balance is zero and husband’s account balance is approximately $400,000.
How is this depicted on the form 8606? Line 6 on 8606 is one of the problems. Wife’s balance at the end of 2007 is zero–spouse has rolled over the balance into his account. When zero is entered on Line 6, this causes wife’s basis to be used up completely. Seems that only a small amount of wife’s basis should be used up by the RMD. The remaining basis should be attributed to the surviving spouse. Again, how is this properly represented on the forms 8606 for the respective spouses?
Permalink Submitted by Alan Spross on Mon, 2008-03-17 21:03
Very good question, since the IRS has not provided sufficient guidance in the Inst. for Form 8606 or in the very general reference to inheriting an IRA with basis on p 21 of Pub 590. Central to this issue is what figure to show on the 8606 for account balance in the year of the IRA owner’s death. I believe it should be the date of death value, since by 12/31 of that year, the account balance is likely to be -0- for various reasons. The IRS seems to have temporarily forgotten here that people actually do die.
In your posted scenario, I would proceed as follows.
1) Using remaining basis from 2006, report wife’s RMD in 2007 on her 8606 using an IRA value as of her date of death on line 6. The 8606 will show what her ending IRA basis was on line 14 after recovering some basis with the RMD. The DOD value may be reported on decedent’s Form 5498 by the IRA custodian, and if they don’t they are required to provide that info on request.
2) Transfer that unrecovered basis on line 14 of decedent’s 8606 to line 2 of survivor’s 8606 where it will be added to survivor’s own basis. Attach an explanatory statement explaining what has been done. Account value on line 6 will show the survivor’s new total IRA value as of 12/31/07.
Any distributions including RMDs that he takes during the year will be subject to the pro rated factor of the combined account basis.