Inherited vs Spousal Rollover
I have a client, the hushand just passed away in july at age 90 of this year. The spouse is still living and is age 86 and only has some nonqualified CD’s. She is the primary beneficiary on the IRA account and the 2 sons were named equal contingent beneficiaries. What gives her the best advantage, do an inherited IRA or take it as a Spousal Rollover? Since RMD has been ongoing and there is only a slight difference in age which way gives her the best advantage as well as providing the best advantage to the 2 sons when they inherit the remainder of the account if any? I have read the appropriate sections in Ed’s book “Parlay Your IRA into a Family Fortune”, but I don’t seem to see an advantage one way or the other.
Permalink Submitted by Anonymous (not verified) on Thu, 2010-11-04 20:19
There are [u]clear[/u] advantages to assume or do the spousal rollover:
1. Lifetime RMDs are lower – Uniform (TIRA rules) vs Single table (Inherited).
2. In an inherited IRA the benes (when they get the IRA) are required to take RMDs based on that single table mentioned above (the method of the original inheritor). In an assumed IRA the sons can spread RMDs over their LE.
pko
Permalink Submitted by Alan Spross on Thu, 2010-11-04 20:49
pko is correct.
It is also vital for her to be aware that the contingent beneficiaries disappear upon husband’s death unless she chooses to do a disclaimer. Based on the ages involved here, and other circumstances such as tax brackets and potential estate taxes, she might be wise to at least consider a full or partial disclaimer. She also needs to name her own successor beneficiaries unless she is doing an immediate full disclaimer. She must take the 2010 RMD if her husband did not fulfill that requirement, but taking that RMD will not invalidate her ability to disclaim within the 9 month period if she desires.
Permalink Submitted by george collins on Sun, 2010-11-14 13:46
1.. [i][b]Assumed IRA[/b][/i]–what is this vs an inherited IRA??
I copied the following from another thread from Alan. Is this my answer??
[i][b]I assume here that she was a named beneficiary on the IRA agreement rather than inheriting through owner’s estate.[/b][/i] Is my translation of this sentence that “assumed = beneficiary transfer?
2..If we change the original thread question concerning an IRA, are your answers the same for ROTH IRA?
jerry
Permalink Submitted by Alan Spross on Sun, 2010-11-14 23:51
In this case, “assumed” is just an unofficial descriptive term for a spousal beneficiary “assuming” ownership of the inherited IRA by having it retitled with the surviving spouse as owner. The result is the same as rolling the IRA over to an existing IRA of the surviving spouse. Of course, only a sole spousal beneficiary can “assume” ownership of an inherited IRA.
If the inherited IRA was a Roth IRA instead of a traditional IRA, the above comments hold true. However, some Roth IRA custodians make a sole surviving spouse the default owner of the inherited Roth. There is much less need for a surviving spouse to maintain a Roth IRA in inherited form since distributions will be tax and penalty free if the Roth has met 5 year aging, and if not most of the balance will come out tax and penalty free because it is composed first of contributions.
Permalink Submitted by george collins on Mon, 2010-11-15 18:58
Thanks Alan.
One more question.
I have both IRAs and RIRAs
I understand she must take RMDs(based on her age) for the IRA. Is there any required RIRA RMD after my wife assumes the RIRAs??.
Permalink Submitted by Alan Spross on Mon, 2010-11-15 19:13
No, not for the Roth IRA. Once she assumes it, the Roth will be treated as if she was the original owner, and therefore there are no RMDs. However, there will be RMDs for HER successor beneficiaries.
Permalink Submitted by george collins on Mon, 2010-11-15 19:30
Thanks again. I am aware of the RMD requirements for the kids, grandkids.
jerry