rollover of inherited IRA by spouse
My client’s husband died. The bank took out the RMD from his IRA and then moved the balance to the wife’s IRA. The question is: does this transfer of the husband’s IRA to the beneficiay’s (wife) IRA constitute a rollover that would start the clock on the 12 month limit for additional rollovers?
Pub 590 is not clear. Other people I have spoken to about this situation say no this would not be considered a rollover that would start the clock on the 12 month limit. The bank has told my client that taking the money out now even for a rollover to another IRA would be a taxable event. Is the bank just trying to keep the funds?
Permalink Submitted by Al Fry on Wed, 2008-12-24 17:56
No. Besides it was a transfer. If she takes money out, the bank would treat it as taxable, since they would have no way of knowing if she rolled to another IRA or not. If she does roll it to another IRA (within 60 days), she would indicate so on her 1040. The new IRA custodian would issue a 5498 in May, showing the money being deposited.
Permalink Submitted by Alan Spross on Wed, 2008-12-24 20:04
It does sound like a transfer, which would not be reported.
However, the other issue of “what if” the surviving spouse gets a check and does a rollover into their own IRA or into a new IRA account? The 12 month limitation seems to be the issue that no one wants to address. I have reviewed dozens of articles by CPAs dedicated strictly to the spousal rollover and not one of them chooses to address the 12 month limitation, either in terms of a recent prior rollover before the spousal rollover or in terms of tieing up the receiving IRA for 12 months after the spousal rollover.
Nothing in Pub 590, nothing in the IRS Regs, or in the tax code makes this a carefully avoided issue. The reason it is probably avoided is because there has not been a specific ruling, and another reason is probably that any limitation due to a spousal rollover has not been enforced. What little monitoring is done on the 12 month limitation is likely done by the IRA custodians, not the IRS. If this had been an issue for the IRS, we would all be hearing plenty about how they made some widow’s rollover in a time of crisis a taxable distribution.
So, there does not seem to be a technical answer here, other than to move it by transfer or existing account name change if possible. Another option is to roll it into a new IRA, so the new IRA can remain untouched for a year. However, if someone has done an actual reportable rollover, there is probably virtually no risk of the spousal rollover actually triggering IRS attention, even though it is probably a technical violation of the tax code as written.
If anyone has heard of this becoming a problem, please advise.
Permalink Submitted by Al Fry on Wed, 2008-12-24 21:26
Hopefully, this was done via transfer. On the other hand, the one-year examples seem to refer to IRAs that you own, not one that your spouse owned. I think Bruce could provide a good defence for that.
Permalink Submitted by Bruce Steiner on Wed, 2008-12-24 21:49
Thanks, Al, but to avoid having to research the issue (and to avoid the risk that it’s no good), the simplest approach is for the next transfer to be a trustee-to-trustee transfer.