Spouse Inherits IRA after RBD
I have a client that inherited an IRA from her husband who had already begun taking his RMD’s. She is 59 and she is consdering combining the inherited IRA with her existing traditional IRA. Is there any disadvantage of her giving up the “inherited IRA” making this move to a traditional IRA?
Permalink Submitted by Alan Spross on Tue, 2009-01-27 19:16
Only if she will need IRA funds before she is 59.5, and she is very close to that age. If she needed funds, they are penalty free from an inherited IRA, but not from her own IRA until she is 59.5. At 59.5, she is better off with the rollover or assumption of the account as her own.
She should also check to see if he ever made non deductible contributions to his IRA and filed Form 8606. She would then inherit the unrecovered basis and some of her distributions would be tax free.
Also, note that if her husband did not take his full RMD in the year of his death, that RMD must be distributed and cannot be rolled over.
Permalink Submitted by Saleah Harpole on Tue, 2009-01-27 20:14
Thank you for your response Alan. One more question, if the wife moves the inherited IRA into her own IRA, will she then follow the rules for calulating RMDs based on the Uniform Lifeime Table the same as any IRA owner?
Thanks again!
Permalink Submitted by Alan Spross on Tue, 2009-01-27 20:59
Yes.
She would use the Uniform Table for the year she assumes ownership as if she was the owner all year. The only exception here would be when ownership is assumed in the year of spouse’s death, and in that case the deceased spouse’s RMD would apply for that year.
Permalink Submitted by James Mitchell on Wed, 2009-01-28 14:20
I thought when a TIRA was inherited, the RMDs had to be based on the age of the original owner. Would that not complicate merging the TIRAs from different owners?
Permalink Submitted by mk foss on Wed, 2009-01-28 18:01
An inherited IRA is paid out based upon the life of the beneficiary in almost all cases. If the IRA owner was receiving RMDs and had no beneficiary or named a beneficiary without a life expectancy, then the remaining life expectancy of the decedent (as if they were still alive) from the Single Life table is used.
When the surviving spouse does a rollover, it’s as if the account always belonged to the spouse and the life expectancy of the previous owner is irrelevant. The surviving spouse uses the uniform table to determine distributions.
Permalink Submitted by James Mitchell on Wed, 2009-01-28 20:05
“An inherited IRA is paid out based upon the life of the beneficiary in almost all cases.” OK. But an inherited IRA must begin RMDs by a year after the original owner’s death. If the person getting the inherited IRA has personal TIRAs of their own (and they’re pre-RMD age), the IRAs would have to be handled differently wrt RMDs. Note that I should have a question mark after this… Thanks.
Permalink Submitted by mk foss on Wed, 2009-01-28 21:15
A beneficiary of an IRA must take RMDs beginning the year after the death over their life expectancy.
If the person has TIRAs of their own, there is no combination of RMDs from the inherited account with the account they own. If the beneficiary is under 70.5, they will only have RMDs from the inherited account.
When a spouse-beneficiary takes the account as inherited (instead of rolling it over or “treating it as their own”), they can put off distributions until they owner of the account would have been 70.5. If the owner of the account had passed their RMD, the spouse-beneficiary takes distributions beginning in the year after the death using the single-life table.
It is rare that a surviving spouse would take distributions from the single-life table instead of doing a rollover, if the spouse is over 59.5.