IRA Owner Dies after 2010 Conversion
What are the options if an IRA owner dies after converting to a Roth in 2010. Are the following assumptions correct:
1. Taxes not already paid on the conversion would be due on the final return of the decedent, including any due on
income deferred to 2011 and 2012.
2. If converted IRA passes to a surviving spouse, then he/she could pay tax on any income deferred to 2011 and 2012 just as decedent would have.
3. If death occurs prior to 10/17/11, the conversion could be completely or partially recharacterized if the 2010 return can be filed or amended by this extended due date.
Permalink Submitted by Alan Spross on Tue, 2010-01-12 16:48
Yes, the statements are correct. Minor editing of 2) follows:
2) 100% of IRA must pass to surviving spouse (sole beneficiary).
Added: Surviving spouse is able to make this election no later than the extended due in the year following spouse’s death, and the election becomes irrevocable after that date.
Of course, the exact mechanics of making these elections is pending IRS release of Forms and instructions. While the 8606 will need several revisions to reflect 2010 rules, it is possible more than a revised 8606 will be involved.
Permalink Submitted by Edward Czapor on Wed, 2010-01-13 02:17
Thanks Alan, I meant sole beneficiary so that spouse could assume or rollover IRA as their own. However, your response prompts another question. If the spouse was not a soul beneficiary, could not the IRA be split by the end of the year after death into separate accounts allowing income deferral by the spouse to either 2011 or 2012. Or in this case would establishing separate accounts need to be moved up to before the extended due date as you indicate to allow this election.
Ed C.
Permalink Submitted by Alan Spross on Wed, 2010-01-13 04:25
Ed,
I do not know the answer to this question. and have not been able to find all the potential amendments to Sec 512 of TIPRA that included the initial provisions for 2010 conversions.
It is also difficult to locate specific guidelines regarding the trigger date for determining if the spouse is the sole beneficiary or not. Potential trigger dates could be:
1) Date of death beneficiary statement
2) 9/30 of the year following the date of death for identification of designated beneficiaries
3) 12/31 of the year following date of death for establishment of separate accounts for RMD determination
My impression is that the 12/31 date governs with respect to RMD determinations. The separate accounts enable use of each beneficiary’s life expectancy for their accounts, but I think separation of the surviving spouse’s share by that will also permit the spouse not to begin RMDs until the year decedent spouse WOULD HAVE reached 70.5. This latter issue is not clearly defined in the Regs.
Taking this a step further, there is no reason to believe that the definition of sole spouse beneficiary needs to be tied to RMD Regs in any way, since here we are only contemplating when income needs to be reported. So will the IRS want to allow an inherited Roth to be split up such that the non spouse beneficiary share must be reported in the year of death while the surviving spouse can continue deferral for their part? So you ask an excellent question as usual.
Now with all these large conversions to possibly multiple Roth IRAs, I can see a real quagmire developing if the Roth beneficiaries are different from each other and/or the TIRA beneficiary on the TIRA that funded the conversions which could conceivably be recharacterized!! The parties can fight over that while they wait to see if the estate tax will be brought back retroactively or not.
Back to your basic question, we may need an IRS Notice to know for sure.