Ex-spouse IRA beneficiary
Client died in June 2010 age 62. He left a Traditional IRA with his ex-wife as primary beneficiary and no contingent beneficiary. What are the options the ex-wife has in regards to this inherited IRA?
Client died in June 2010 age 62. He left a Traditional IRA with his ex-wife as primary beneficiary and no contingent beneficiary. What are the options the ex-wife has in regards to this inherited IRA?
Permalink Submitted by Alan Spross on Tue, 2010-10-19 16:43
If the marriage was legally terminated according to the laws of the particular state prior to the date of death, the ex wife is treated in all respects as a non spouse beneficiary. Therefore, she must take RMDs based on her single non recalculated (ie 1.0 divisor reduction each year) life expectancy with the first RMD due by the end of the year following the year of his death. She CANNOT do a rollover to either her own IRA or an indirect rollover to an inherited IRA. Any change of IRA custodian must be done by a direct trustee transfer to avoid a taxable distribution. Of course, death distributions are always penalty free (coded 4 on the 1099R).
Things she needs to do:
1) Check to see if she inherited any basis in the IRA. Check with executor, who will then check the tax records of the decedent. If there is basis, she would report it on an 8606 and her RMDs would be partially tax free.
2) Name her own successor beneficiary ASAP after providing the death certificate or other documentation required by the IRA custodian.
3) Change investments in accord with her own risk and asset profile.
4) Recognize that inherited IRAs are not inherently protected in bankruptcy, as reflected in various state court decisions. Her state will also have specific asset protection provisions for IRAs.