IRA Beneficiary is an Ex-spouse

A couple(C) setups IRA’s with each spouse[(A) & (B)] as the beneficiary for each other. Some time later, the couple(C) divorces. Then, each divorced spouse [(A) & (B)] marries a new spouse[(D) & (E)]. The original beneficiary documents for each individual for the couple(C) were never updated for the original beneficiary documents.

Spouse(A) is killed in a motorcycle accident. Spouse(B) is the beneficiary of Spouse(A)’s IRA even though spouse(D) is now the widowed spouse of Spouse(A). How does the law now treat Spouse (B)? Spouse or non-Spouse beneficiary?

Is Spouse (B) permitted to roll Spouse (A)’s IRA into her IRA or is Spouse (B) treated as a non-spouse?

Thank you.

Les E Vicain, Jr.

The named-beneficiary is the one entitled to the IRA benefits. Qualified plans require that the spouse be named as a beneficiary (unless they waive that right) but IRAs do not.

D’s options would be to see if anything in the original divorce wasn’t complied with or if there is a state law that removes an ex-spouse as a beneficiary. If they live in a community property state, it can be more complicated if contributions were made while A and D were married.

Your other question is how (B) would be treated. Since B was divorced from A at the time of death, B is a NON SPOUSE beneficiary, and cannot roll over the IRA proceeds into their own name. The funds can only be moved by direct transfer since no rollovers are allowed for non spouse beneficiaries. RMDs would start the year after owner’s death unless waived for certain years as under the current 2009 waiver.

Spouse (B) is a “Non-spouse beneficiary” and she only has two options:

1. Distribute 100% of the IRA and pay ordinary income taxes but no early withdrawal penalty (generally not a smart move) or

2. Transfer all or part of the assets into an Inherited IRA and begin RMD distributions within one year of Spouse (A’s) death.

A “Non-spouse beneficiary” can never transfer an inherited IRA into their own name. This option is reserved for the real spouse.

Having said this, there is a legal issue to resolve as to which spouse is or can be made entitled to inherit the decedent’s IRA, and for that you should seek competent legal advice.

Good luck.


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