Spousal IRA
Good Afternoon
I am looking for guidance with the following fact pattern:
Traditional IRA account owner, 65 passes away in 2012
Spouse, 47, sole beneficiary
Spouse mistakingly completes paperwork making the acocunt her own IRA.
Her intention was to establish an inherited IRA (remain beneficiary) to access the account without being assessed the 10% penalty
The bank is refusing to re-register that account as an inherited IRA
Questions:
Does the spouse have the ability to change the registration to an inherited IRA?
Does it make a difference if the new account was etablished more or less than 60 days ago?
Does the spouse have any recourse?
Thank you,
Brian
Permalink Submitted by Alan Spross on Tue, 2012-08-28 20:36
Brian,
Ouch, costly error.
Once a spouse has assumed ownership, by action or by default, she cannot return to inherited status. Her only hope was to get the custodian to intercept the paperwork because there is no IRS appeal pathway here. The bank will issue a 5498 next spring showing her as the owner along with the year end value of the IRA. If there was any bank error in the process, she might have leverage to get them to correct it, otherwise there is no solution. Sounds like she has already made this attempt.
Of course, she can undertake a 72t (SEPP) plan, but 12 years is a long time to expect these plans to address a taxpayers needs without causing problems. If the annual distribution proves insufficient down the road and she has to take one extra dollar out of the plan, the plan is terminated and retroactive penalty and interest is owed all the way back to the first penalty free distribution. Depending on the size of the IRA in relation to her spending needs, there are strategies that can match up her needs with the funds available.
Permalink Submitted by ShipsnGiggles on Tue, 2012-08-28 20:57
Thank you Alan