Inherited SEP by spouse
Decedent (age 74) had a SEP account naming spouse as only beneficiary.
Surviving spouse is age 86. This is my understanding of the surviving spouses options:
Roll decedent’s SEP into the survivor’s IRA. MRD would be based on the survivor’s single life expectancy.
Become the owner of the deceased spouse’s SEP. MRD would be based on the decedent’s single life expectancy.
In either case above, the survivor can name a new beneficiary.
The survivor could also disclaim the SEP if he was concerned with future Estate Tax issues.
Permalink Submitted by Alan Spross on Tue, 2008-10-07 00:15
You are correct.
The RMD divisor of the survivor in the year following owner’s death (age 87) is 13.4 if ownership is assumed. In subsequent years, re calculation benefits the survivor using Table III for their own IRA.
If the decedent’s remaining life expectancy were used in an inherited IRA, it would be based on the year of death (74) which is 14.1 and reduced by 1.0 each year thereafter. The first RMD year would be 13.1 which produces a larger RMD in the year following death and beyond.
Therefore, assuming ownership of the IRA or rolling it into the survivor’s IRA will provide for slightly lower RMDs throughout the survivor’s remaining life.
Permalink Submitted by mk foss on Tue, 2008-10-07 02:24
I think there is a definite difference between the two approaches.
If the SEP is rolled over and the uniform table is used, the RMDs are based on 2 lives. The new beneficiary will be able to take payments out over his/her life expectancy.
If the spouse takes distributions as a beneficiary using the single life table – the factor will be 14.1 in the first year. Any beneficiary named will take distributions over the remainder of the 14 year period after the spouse passes away.