Bene IRA for Spouse
We have a client, age 55, who’s spouse passed away, leaving her a Trad IRA. She needs some cash, so she’s electing to be treated as a beneficiary instead of treating the IRA as her own. On the mutual fund company’s form, under the spouse beneficiary election is a box to check to, “Defer the RMD until the deceased would have obtained age 70-1/2.” I’ve never heard Ed Slott discuss this option for a spouse beneficiary before, and I can’t find anything in Pub 590. Is this a valid option?
Permalink Submitted by Alan Spross on Thu, 2011-03-03 15:20
Yes, see p. 36 “spouse as sole designated beneficiary” in Pub 590 below:
http://www.irs.gov/pub/irs-pdf/p590.pdf
Along with the penalty waiver for continuing as a beneficiary, this is an added advantage in not requiring an RMD until the decedent would have reached 70.5. The first benefit only helps surviving spouses under age 59.5, but the RMD deferral primarily helps older spousal survivors who do not need distributions. In those cases where a survivor has reached RMD age, assuming ownership will trigger RMDs, but if the decedent would not have reached 70.5 yet, the RMDs can be delayed until that year if the IRA is maintained in beneficiary form.
NOTE: This rule requires the surviving spouse to be the sole designated beneficiary. However, if the IRA is left to other beneficiaries as well, but a separate account is established for the spousal beneficiary by 12/31 of the year following death, the surviving spouse is deemed to satisfy the “sole designated beneficiary” requirement.
Permalink Submitted by Dennis Prout on Thu, 2011-03-03 19:20
Great!
How would RMD’s be calculated then in the year the deceased spouse would have turned 70-1/2?
Permalink Submitted by Alan Spross on Thu, 2011-03-03 21:07
If the survivor waits until the year that the deceased spouse would have reached 70.5, they should usually assume ownership in that year unless they are still under 59.5.
If they assume ownership, their RMD will be based on the prior year end balance and their attained age that year. They are assumed to have owned the IRA all year for RMD purposes. This also changes their own successor beneficiaries to designated beneficiary status who could then get their own stretch when the survivor passes.
If they choose to continue as beneficiary (perhaps still under 59.5), then their RMD is based on their single life expectancy table for their attained age that year using the prior year end balance. For years after that, they check the single life table each year and do NOT reduce the divisor by 1.0 like a non spouse beneficiary must.