Distributed check – deceased spouse
Upon hearing of death of owner in 2010, credit union made distribution by check for owner’s full IRA balance and withheld taxes
Vanguard tells me that the surviving spouse (Power of attorney for survivor, actually)
needs to have credit union unwind distribution to correct before they can handle rollover.
This does not sound right to me.
My understanding is that we can roll over that portion of the deceased’s IRA that is not subject to the 2010 RMD
within the 60-day rule. That can simply be accomplished by a check and a letter of instruction.
Can someone confirm or deny my understanding of this matter?
Also, is it correct that the survivor does not have to make RMDs on the inherited portion until 2011 since the
2010 RMD (of the deceased) was made before the rollover?
Thank you.
Chip Simon
Permalink Submitted by JAMES MAGNO on Wed, 2010-08-04 18:49
Chip-
Since the distribution was made after death it is considered to be a transaction relating to an inherited IRA – 60 day rollovers are not permitted for inherited IRAs – must be a trustee to trustee transfer. I agree with Vanguard. Seems to me that the Credit Union had no authority to make the distribution unless the beneficiarie(s) requested the distribution.
Regarding the post mortem distribution – yes if the RMD for year 2010 was taken prior to death, there is no further required distribution for year 2010. However tax rates may be higher for beneficiarie(s) in year 2011 etc. IF RMD for beneficiary is taken by 12/31/2011 – year following date of death, the lifetime stretch is preserved.
Jim Magno
Permalink Submitted by Anonymous (not verified) on Wed, 2010-08-04 19:06
I agree withe the 60-day rollover option, but it can only go to an assumed IRA
(I hope that was implied). Was the distribution check made payable to the living spouse? If yes, then I see no complications.
I would agree with Vanguard to some extent, because under who’s authority did the Credit Union make this transaction and withholding? Is it disclosed in their custodial asccount agreement?
A cleaner approach (without tax reporting) would be for this account to be transferred to the living spouse. Then he/she would take the 2010 RMD and is free to asset transfer it , again without tax reporting.
The RMD issues: The final RMD needs to come out anytime in 2010. Depending on the age of the surviving spouse the RMDs may vary. How old is he/she?
pko
Permalink Submitted by Chip Simon on Wed, 2010-08-04 19:48
I forgot to mention that both parties are 79 and in RMD.
The distribution check was made payable to the surviving spouse.
The 2010 RMD was not made before DOD…so the RMD dollars are still in the distribution.
Pub 590 says,
“However, if you receive a distribution from your deceased spouse’s IRA, you can roll that distribution over into your own IRA within the 60-day time limit, as long as the distribution is not a required distribution, even if you are not the sole beneficiary of your deceased spouse’s IRA.”
So that seems pretty clear to me about using the 60-day rule except for the amount of any RMDs not taken before death.
I completely agree about the unauthorized distribution, but if the credit union messes up like this, I can only imagine the stink and
competency at trying to put the genie back in to bottle. I imagine that the rules are written in Pub 590 to make it easy on the survivor
in instances like these.
I think that a note in the 2010 tax return to accompany the rollover is the way to go.
Anything that I’m missing?
Permalink Submitted by Bruce Steiner on Wed, 2010-08-04 19:58
The IRS doesn’t make rules in the Publications. The Publications merely provide the IRS’ interpretation of the law, and are not considered particularly authoritative.
The law permitting spouses to roll the benefits over within 60 days of receipt (in the same way a living participant or IRA owner can do so) is in Section 402(c)(9).
The spouse should make sure to complete the rollover within the 60-day period, if desired.
Permalink Submitted by JAMES MAGNO on Wed, 2010-08-04 20:06
I totally spaced on the pertinent fact that the surviving spouse inherited this IRA. I still think the discussion starts with asking who authorized the distribution – it makes no sense to me that the Credit Union would make a distribution based solely on death certificate. I make this point because there is withholding which would cause the rollover to be less than the gross distribution from decedent’s IRA.
Jim
Permalink Submitted by Alan Spross on Wed, 2010-08-04 20:19
I agree with Chip here (and Jim’s later post):
1) The CU’s action is inexplicable – perhaps survivor “miscommunicated” with the CU?
2) An IRA inherited by a spouse is not treated as an inherited IRA, and the surviving spouse can take a distribution and roll it over at any time with the exception of any RMDs.The 2010 RMD could have been taken by the owner before death, or by the surviving spouse post death. Any aggregation of RMD issues would have to be those of the owner prior to death, since after death the RMD cannot be aggregated with any of the surviving spouse’s IRAs whether the survivor assumed ownership or not.
3) I also do not understand Vanguard’s position here unless they think for some reason that the surviving spouse does not have the ability to do a 60 day rollover. The withholding is a problem though unless the surviving spouse can replace the withheld amount from other funds. Hopefully the CU allocated the withholding to the surviving spouse and NOT to the decedent! There may be something else brewing here for Vanguard to take this position.
4) Correct that if the 2010 RMD of the owner has been made, the next RMD is not due until 12/31/2011. If ownership is assumed and the survivior has not yet reached the RBD, there would be NO RMD needed for 2011.
Asking a CU that messed up in the first place to unwind their work could trigger a bigger mess. It would be better to work with Vanguard if possible unless the withholding dollars block that approach. The default rate is 10% but we don’t know what % or dollars apply here.
Permalink Submitted by Jose Morales on Wed, 2010-08-04 20:59
The last thing you want is for the CU to accept these funds back as a rollover into the surviving spouse’s IRA, which from the looks of things could be a very real possibility. If that happens then the surviving spouse would have no other option but to have Vanguard request an IRA to IRA transfer. I’m not sure why Vanguard would have an issue with the surviving spouse simply rolling the inherited funds over into their own IRA, other than the complication of having taxes withheld, which the beneficiary may not be able to replace out of pocket.
Permalink Submitted by kathleen Lane on Thu, 2010-08-05 16:32
I’m not sure what the Power of Attorney has to do with this transaction. A Power of Attorney dies at the same time the person who created it does.
Once the husband died, the beneficiary named on the account is the person authorized to communicate with the credit union.
I agree with some of the other comments. I expect the surviving spouse notified the credit union of the death and provided the death certificate necessary to authorize the transfer of the account to the surviving spouse (who I am assuming was the named beneficiary).
Death notifications are not automatically sent to credit unions or other financial organizations. There is about a 90-day lag time between the date of death and the death records becoming available to financial organizations. Even if the credit union checked the social security death index file, they would still need a death certificate from someone to authorize the rollover/withdrawal of the funds to the surviving spouse.