How does a surviving spouse [sole bene] “assume” the Bene IRA?

Submitted by ellen dawmdellipizzi on Fri, 2014-07-18 16:35

I inherited my dec’d husbands IRA 23 years ago. The IRA was put in a Bene account. Ihave been taking yearly distributions using Single life table. Now, I want to “treat the IRA as my own”. Exactly how do I do this. THANKS!



Submitted by ellen dawmdellipizzi on Fri, 2014-07-18 20:26

Please give specific steps I need to take, to “treat as my own IRA” . Also, what table to use for RMD?

Submitted by Alan - IRA critic on Fri, 2014-07-18 20:40

Contact the IRA custodian and tell them you want to roll the IRA over to your own IRA. They will probably require you to open a new IRA account number and that IRA will be titled showing you as owner rather than beneficiary and your husband’s name will no longer appear on the IRA. If you complete this before year end, your RMD will be less than what you have been taking because your 2014 RMD will be calculated using Table III (Uniform Table) and the age you will attain by 12/31/2014. If either your husband or you have prior non deductible contributions (Form 8606 required), please advise.

Submitted by ellen dawmdellipizzi on Fri, 2014-07-18 20:54

the custodian told me NOT to do a rollover, to leave the title as is – “my name, bene of , husbands name”.  Simply take the distribution as “normal”, instead of ” death” distibution.  They insisted that was all I had to do.  I want to do the simplest strategy possible to avoid any possible snafu.  Wat is the difference between “treating IRA as one’s own” or doing a rollover as you suggest?  Would, what you recommend, be called a “spousal rollover”?

Submitted by Alan - IRA critic on Fri, 2014-07-18 21:26

  1. Yes, I am referring to a spousal rollover. This can be done by taking full distribution and opening an IRA in your name with any custodian you please or rolling it over to an IRA account you already have as owner. It can also be done with the same custodian by just transferring the funds into a new IRA account there in your name. Some custodians may allow you to keep the same IRA account number and change the title on it, but most do not do this. Now there is a default rule that states that if you fail to take the RMD as beneficiary in any year, you automatically default to ownership. So in a sense if you do what they say (take Table III distribution this year) your RMD will be less than it would be as beneficiary and you will technically be considered as the owner. But I do not recommend going that route. Your IRA should be property titled to reflect the current status.
  2. Is this a small bank custodian? It is the first time I have ever heard of resistance in re titling an IRA to a surviving spouse, which can be done anytime, even many years after the death. It is very routine.
  3. This could effect your own beneficiary which I assume you have named on the account. What happens is if you were to pass and clearly owned the IRA, your beneficiary could use their own life expectancy for RMDs. Most beneficiaries are younger and therefore can stretch the IRA longer. But if your own beneficiary was considered a successor beneficiary to you because you still had an inherited IRA, all that beneficiary could do would be to maintain your own RMD schedule and not use their own life expectancy.
  4. Are you between 59.5 and 70.5. or over 70.5?  This also affects the successor beneficiary RMD rules.

Submitted by ellen dawmdellipizzi on Sat, 2014-07-19 14:28

1. Why do you not recommend going that route? – [just changing the distribution code from “death”, to, “normal”? In Ed Slotts July 17, 2014, he states” #1. Do a trustee to Trustee transfer instead.  Thebest way to avoid making a 60 day rollover mistake is to avoid making 60 day rollovers.  Transfer your funds directly to another retirement account…” PLEASE – what is the EXACT wording for the title of the new account? 2.No, this is one of the largest banks in the U.S. 3. My bene is not a consideraton. 4. I am 65.5 years old.  My entire net worth is  in these IRA accounts held by  4 different custodians. This brings up another consideration – as of Jan. 1, 2015, only one rollover per year will be allowed.  This neccessitates that I act this year, as the funds are held by 4 custodians, so it will entail 4 rollovers. Please advise. In 2014, I have taken distributions using “death” code.  I need to do my final  distibution for 2014 this September, and want to keep it the same “death” code.  SO, at what point can I move these IRA funds to my own?  I have taken “death” distributions this year ; will take last neccessary distribution in sept., 2014.  Can I get the 4 accounts moved into “my own” in 2014, even though I have held them as “inherited/bene” accounts in 2014.  Can I change them mid-year, to beat the 1 rollover per year Jan 1, 2015 new rule?

Submitted by ellen dawmdellipizzi on Sat, 2014-07-19 14:34

Can I change the title mid-year, to my own, even though they were titled “bene” part of the year?  And funds were distributed “death” code? How will account title be reported to IRS?  THANKS!

Submitted by Alan - IRA critic on Sat, 2014-07-19 18:49

  1.  In the letter, he is recommending that when a surviving spouse wants to do a spousal rollover, it should be done by direct transfer to avoid counting as a rollover against the one rollover rule as further limited come 2015. Most custodians will not want to retain the same IRA account that was inherited, but if they require this they should change the title to delete the decedent’s name showing only the surviving spouse as owner. Distributions would then be coded 7 instead of 4 on the 1099R. What I did not recommend is maintaining an IRA titled as an inherited IRA while taking RMDs as the owner using Table III.
  2. Remember that since you are not yet 70.5, you will have no RMD requirement for the year in which you transfer the IRAs into your own name as owner. Therefore, if you do this before year end, you do NOT have to take the Sept distribution, but you certainly can if you want to. If you want to have the Sept distribution coded 4 you cannot transfer that account from an inherited account until after you take that distribution.
  3. The 1099R reporting requirements in the 1099R Inst are not totally clear for spousal rollovers. Therefore, all 4 of your custodians MAY NOT interpret them in identical fashion. Also, the title on your inherited IRAs may show your name first on some and your husband’s name first on others. Either is OK with the IRS, as the IRS only cares that both names are listed. Once you become the owner of the IRAs, only your name will be included. Your RMDs will be calculated from the Uniform Table, and you will not have any RMDs due until the year you reach 70.5. Being over 59.5, any distributions you want to take will be penalty free.
  4. You probably should change all 4 of these IRAs to ownership status this year, and yes you can do this mid year. It will stop your RMDs for 2014 and until you are 70.5 and it will avoid potential issues with the new rollover restrictions starting in 2015. Even if one of your custodians issued a 1099R in error, if it’s for 2014 you can just report a rollover on your return because this year you can still do one rollover from each IRA account. But direct transfer is faster, safer, and has less tax reporting by eliminating a 1099R. There are no downsides to placing these in your name as owner, your RMDs will stop for a few years, and there are no penalties for distributions you need to take because you are over 59.5. You could have done this 6 years ago at 59.5 and stopped RMDs, but perhaps you needed distributions for living expenses.  NOTE: If you took distributions as owner (code 7 and separate 1099R) and death distributions before becoming the owner coded 4, and had two 1099R forms, it is not a problem. They just get added up and reported on line 15a and 15b of your tax return.

 

Submitted by [email protected] on Mon, 2014-07-21 13:39

 why would there have been any RMD for the past 23 years?  As spouse beneficiary, wouldn’t she have been able to wait until he would have turned 70 1/2 to begin RMDs? -m

Submitted by Alan - IRA critic on Mon, 2014-07-21 17:45

Yes, a sole spousal beneficiary does not have to begin RMDs until decedent would have reached 70.5. She did not indicate what year this would have been. Sounds like she might have needed to take distributions for living expenses anyway and if so maintaining the inherited IRA would have eliminated the penalty on those distributions.

Submitted by ellen dawmdellipizzi on Wed, 2014-07-23 08:39

I had success with 2 financial institutions.  Both want me to first take my final RMD  for 2014 as a ‘bene” using “death” for distribution code, and “single life expectancy ” table as the divisor.  Then they will convert the “bene” IRA to my own IRA by “internal transfer”. One institution says they will do a “journal letter”. They also requested a death certificate showing me as spouse.  After the accounts are in my name, I will not have an RMD until age 70.5, and will use “uniform life expectancy table III” for calcuating RMD’s.  Will keep you posted on the other 2 financial institutions.  Can’t THANK YOU enough for you help and guidance!

Submitted by Alan - IRA critic on Wed, 2014-07-23 17:55

Well, limited success. There are two issues that are not being treated correctly by these institutions:

  1. You do not have to take the RMD as a beneficiary in the year you rollover the account to your own account because you will be considered to have owned the account for the entire year. This is stated in the following by Natalie Choate, one of the foremost authorities in the US on IRA rules:  http://www.ataxplan.com/choatesNotes/CNotesV9N1.pdf. See the point about MRD being “unrequired”. Of course, if you want to you can take the distribution from them and roll it over yourself if you do not want to be taxed on the unneeded RMDs. You can still do one rollover per IRA per 12 month period, but only until 12/31/2014. Or just keep the forced RMD if you want to.
  2. You had to have provided these institutions with a death cert in the past or they could not have been sending you distributions for all these years. If they need another copy, then they must have lost the copy you provided them earlier.
  3. You might alert the other 2 institutions to the RMD rule and see what they say. Actually, since you could have taken the total RMD in the past from just one of these accounts (aggregation rules for IRAs inherited from the same decedent), none of these institutions has the right to force you to take an RMD from their account. More importantly, if you were the sole beneficiary there was never a requirement to take RMDs at all until your husband would have reached 70.5.

Submitted by ellen dawmdellipizzi on Wed, 2014-07-23 20:41

1. I need the RMD, so it is not an issue  They are needed distributions, so this is not a consideration. 2. If they want a death cert., I will give it to them; again, not a problem.  3. Please tell me, if the way they want to get these bene accounts, into my name, by” internal transfer”, is correct??? THIS is my main goal. Also , is a bank “journal letter” a legitimate way to move the IRA from “bene. of”, to my own IRA?    Will these be considered “rollovers”?  4 Please explain Natalie Chaote’s message; I did not understand it.  Remember, I just want to get these  “bene”  accounts into my own name, and be able to use table  lll – Uniform life expectancy table when I am 70.5 years old. so, is this “internal transfer” route, the way to go?  THANKS!  { I have taken most of the distribution I need to live on this year using “death” as the reason code.  The remaining distribution that I will need in 2014, I want to take using death code again.  The banks wanted this to be consistent also.  After I take my final distributions, I will convert to my own IRA”s in 2014.  So the IRA’s will start year 2014, as “bene” accounts, and, end 2014 as my own IRA’s.  But all of the distributions will be coded the same – Death.  Is this a problem?  I could not understand Natali Chaote’s

Submitted by Alan - IRA critic on Wed, 2014-07-23 21:15

  1. Internal transfer is an acceptable method and is known as a “same trustee transfer”. This is a direct transfer, not a rollover and not reported on a 1099R. Not sure about “journal letter” but I think it is basically the same thing as the same trustee transfer. I wouldn’t worry about their method other than trying to be sure it will be a non reportable transfer. Do not worry about starting the year with a beneficiary IRA and ending with an owned IRA and do not worry whether the distributions will be coded the same or not. Either way, the distributions are taxable but there will be NO penalty because you are over 59.5.
  2. The only point of the Choate article was to state that in the year the surviving spouse transfers the IRA into ownership status, as long as it is after the year the deceased passed, the survivor is treated as if they owned the IRA all year. That means that any RMD for that year is based on ownership, not being a beneficiary. In your case, not being 70.5 yet, you have NO RMD requirement as owner so you do not need to take an RMD for 2014. But if you need the money for living expenses anyway, you would take the distribution whether you needed to or not, whether it was an RMD or not.
  3. To further simplify, you can take as much out of the IRA as you need anytime you want. The only thing you cannot do is to fail to take an RMD. You will not have RMDs until the year you reach 70.5 as the owner and start with the Uniform Table and look up the divisor every year because the divisor gets somewhat less each year (RMD gets larger as a %).
  4. Don’t worry about how these institutions get the IRAs into your name. They may have different methods, but all are OK. If direct transfer is used, you will not get a 1099R and will not have to report a rollover on your tax return. Other than that, just check the paperwork you get after the transfer to be sure that ONLY your name shows on the account and there is no mention of you being a beneficiary. You are now the owner. But be sure to name your OWN beneficiary on the new accounts. They can be different from account to account if you wish.

Submitted by ellen dawmdellipizzi on Fri, 2014-07-25 09:27

At one financial institution, I have an IRA that is my own, and, a “bene” IRA inherited from dec’d spouse.  When I proceed to “assume” the “bene” IRA, can it be deposited into the pre-existing IRA in my own name?  Is there a formal method to differentiate the source of the funds?  THANKS!

Submitted by Alan - IRA critic on Fri, 2014-07-25 16:54

Yes, you can have the bene IRA transferred into the one you own. One you move inherited funds into your own name there is no need to split out the source of the dollars as they are all treated the same for all tax reasons including RMDs. However, if you still want to track them separately, keep your pre existing owned IRA separate.

Submitted by ellen dawmdellipizzi on Sun, 2014-11-09 10:28

Success!  The IRA ‘s are now in my name.  Can I use the “uniform life expectancy table” to calculate RMD’s ? In the Slott book, it states that this table is “For use by all IRA  owners and plan participants EXCEPT those whose named beneficiary for the entire year is a spouse more than 10 years younger than the owner”   I AM more than 10 years younger than my dec’d spouse.  So, what table do I use to calculate my RMD’s ?

Submitted by Alan - IRA critic on Sun, 2014-11-09 18:49

A prior post indicates that you are not yet 70.5, and since you now own all the IRAs, there is NO RMD due until the year you will reach 70.5. You will then use the Uniform Table for your owned RMDs whether you have combined them or not. The joint life table only applies when both spouses are living, not after one spouse has passed. Until you reach 70.5 you can take no distributions or you can take out any amount you wish. Once you hit 70.5 you must take the Uniform Table RMD as a minimum, but you can still take out more than that if you need to. Note that if you live in NYS, you can exclude up to 20,000 of retirement plan distributions from NYS taxable income.

Submitted by ellen dawmdellipizzi on Fri, 2016-03-25 09:24

I want to name both my estate , and , my niece as benes on my IRA.  the reason is that I want the estate to pay off my existing mortgage with IRA funds. Is this possible.  THANKS !

Submitted by Alan - IRA critic on Fri, 2016-03-25 19:08

You could do that but there are some tradeoffs. The income tax rates the estate will pay are likely to be much higher than what your designated beneficiaries will pay on amounts that they receive. It will also be critical that they establish separate IRA accounts by the deadline or they will lose much of their stretch for their beneficiary IRA accounts. If there is any question about their attention to detail in timely setting up inherited IRA accounts, you might want to consider partitioning your IRA into two accounts, one with your estate as beneficiary and the other for the individuals. Then as your mortgage balance declines you could transfer amounts from the estate IRA to the individual’s IRA and/or take your RMDs from the estate IRA.

Submitted by ellen dawmdellipizzi on Tue, 2016-04-05 10:26

Thank You !  I am doing as you recommended. With the IRA intended for the mortgage payoff, can i write as bene , “Estate of ….[my name]…, for payoff of mortgage …[my address]…” ?  Can I get that specific on the actual benefificiary designation form?  I want to make my wishes as clear as possible.

Submitted by Alan - IRA critic on Tue, 2016-04-05 16:43

Your IRA custodian will probably not approve a beneficiary designation beyond “my estate” for this IRA. And if they did, they have no responsibility beyond the distribution to the estate after the executor submits death certs and letters testimentary from the local probate court.  SInce your estate will be managed according to your will and probate law, I suggest you have your will modified to include a requirement that proceeds from this IRA are to be used to pay off the mortgage. Your executor then has a legal responsibility to follow your wishes, and may even have to make reports to the local probate court. That said, it is not clear who would contest any failure of your executor to do that.

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